Page 32 - DIY Investor Magazine | Issue 38
P. 32

           Aug 2023 32
DIY Investor Magazine ·
‘EVEN WITH THE BEST HEADLINE RATES, SAVERS ARE STILL GETTING POORER IN REAL TERMS’
INVESCO BOND INCOME PLUS – COMPELLING LONG- TERM PERFORMANCE BUT EXPENSIVE VERSUS HISTORY
BIPS (previously City Merchants High Yield) invests in high- yielding fixed-interest securities targeting both high income and capital growth. Fund manager, Rhys Davis, is responsible for its long-term track record and BIPS is the largest fund in the Debt – loans and bonds sector. It currently offers a yield of 7.1% (with quarterly payments) and has returned 4.74% p.a. over the last 10 years (fractionally ahead of NCYF, arguably its closest competitor).
BIPS NAV twelve month total performance of 4.09% has been more than compensated for with a share price total return of 6.80%; the trust has moved from a 6-7% discount to a 0.7% premium, making it the most expensive trust in a sector that trades at a median discount of 7.2%.
As the sole remaining fund in the UK equity and bond income sector, Henderson High Income (HHI) often gets undeservedly overlooked. With a yield of 6.35% and a 10-year NAV total return of 5.76% p.a., it clears our yield and return hurdles with ease. It’s also had a pretty decent 12 months with NAV and share price total returns of 4.62% and 6.64%, and has tended to trade in a range of around 2% above and below par during the last couple of years.
‘IT MIGHT BE TIME TO THINK ABOUT ADDITIONAL INFLATION PROTECTION’
HENDERSON HIGH INCOME – UK EQUITIES ENHANCED BY AN ALLOCATION TO BONDS
HHI differs from these higher yielding funds in that it predominantly invests in both well known and smaller UK listed equities, rather than bonds. However, a portion of its gearing (typically 22-24% of its net assets) is allocated to fixed income investments.
This strategy enhances income returns, dampens overall volatility of the portfolio, and should achieve greater capital growth over time.
We would like to see HHI in the UK equity income sector, but in the meantime this peer group is the best against which to assess its characteristics and performance.
With its higher income focus, HHI’s yield is, unsurprisingly, way above the peer group median of 4.75%, but its NAV total return is also ahead of the sector median of 3.12%, so higher income hasn’t come at the expense of total return – over 10 years, HHI’s NAV total return is 5.76% p.a. - 0.6% ahead of the sector median.
Its overweight allocation to equities was a key driver of its outperformance during 2022; we think that it can continue to benefit from the inherent inflation protection offered by equities.
THE TIME IS NOW
With inflation likely to persist, and further interest rate down the line. Banks have increased interest rates, but are being berated for profiteering and apparently not passing on all of the benefits – even with the best headline rates, savers are still getting poorer in real terms. Closed-end funds, which don’t have to sit on under-earning cash to fund redemptions, are one place that investors can look to for solace.
As the above discussion shows, it may not be possible to offset the full inflationary costs in the short term, but there are plenty
of opportunities that offer a decent yield and the prospect of capital growth over the longer-term, which should go a long way to limiting its impact.
Matthew Read is a senior analyst at
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