DIY Investor Magazine
/
2015 Issue
22
GLOBAL VALUE AND THE TELCOS
Ben Lofthouse has been the portfolio manager of
Henderson International Income Trust (HINT) since its
launch in April 2011, stewarding net asset growth from
£41.5m to £102m today
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.
Performance has been particularly strong recently.
The Trust has been well positioned in higher yielding
stocks as investors have scrambled to find yield amid
declining interest rate expectations and negative bond
yields. Demand for the HINT has been such that the
price to NAV, running at a discount for much of 2014,
has reversed into a premium.
Part of HINT’s appeal has been in its diversification
for domestic investors: the Trust invests in global
income yielding equities, but excludes the UK. There’s
no doubting the UK as an excellent market for equity
income (2014 was a record year), but diversifying yield
to other markets can bring investors certain benefits.
The general election in May serves the point: with
no clear lead in the polls, a messy coalition or hung
parliament is possible. The uncertainty may mean a rise
in volatility.
Ben’s and the team’s investment approach involves
investing in cash generative companies with proven
business models. He likes stocks with high barriers to
entry, preferably built through the offering or holding
of something unique such as intellectual property or
licenses that are hard to acquire. This, Ben says, helps
protect profit margins, generates cash and keeps the
dividends safe.
ACCORDING TO HENDERSON’S GLOBAL DIVIDEND
INDEX 2014 WAS A BUMPER YEAR FOR DIVIDENDS,
REACHING A RECORD $1.17TRN. SPECIAL
DIVIDENDS WERE PARTICULARLY HIGH – HOW
COME?
There are a number of reasons but part of the trend
harks back to the recession. At that time, traditional
sources of finance had dried-up and businesses found
themselves needing to focus on their balance sheets:
reducing their debt and improving their capital ratios.
Gone were the days of economically driven top-line
growth, and so to improve their profitability or valuations
businesses faced two options: cut costs, which
many did, or sell either less profitable or undervalued
businesses (the modus operandi became simplification
not diversification).
Having strengthened their balance sheets companies
are now looking at what to do with their cash, with
ultra-low interest rates adding to the appeal of special
dividend distributions - cash sat on the balance sheet
is earning a pittance in the money markets and is
ascribed little value by investors. In fact companies
are seeing investors rewarding them for handing-back
cash, as evident in the share price of those deploying
this strategy. Vodafone’s disposal of its Verizon stake
is a good example in this regard, providing one of the
largest special dividends last year.
While 2014 was a bumper year, we expect more of the
same in 2015. A number of companies have already
announced specials including Swiss Re, Natixis, and
European TV channel operator RTL.
SOME COMMENTATORS TALK OF THE US MARKET
LOOKING EXPENSIVE, DO YOU AGREE?
II wouldn’t say it’s expensive but rather mid-range;
various metrics tell us so, such as the average price
of equities relative to long-term underlying earnings
(known as Shiller P/Es).
But the investment case in the US is less attractive than
it was year ago. Interest rates are most likely to rise in
the US first which may cause a market correction, but
more importantly the competitive edge US companies
gained from cheap shale oil has been diminished on
account of generally lower oil prices worldwide. A
strong dollar also hampers exporters. In general we find
value in companies with below-average earnings and
low investor expectations, which given the recovery in
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As of 24/03/2015
by Ben Lofthouse
portfolio manager of
Henderson International Income Trust
