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Henderson Far East Income – consumption will be key to Asia's growth

Find out why Michael Kerley expects dividends from Asian companies to continue to grow, despite there being some recent weakness in company earnings.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

  • Michael Kerley remains focused on consumer companies, especially in China
  • This has helped recent performance
  • He thinks the outlook for dividends is strong, though earnings have recently been weaker

The Asia Pacific region has an exciting future ahead of it.

By 2030, 7 out of 10 largest cities in the world will be in Asia. At the same time, two-thirds of the world's middle classes will be living there, and this is set to drive consumer demand for goods and services.

Technology has also revolutionised the way Asian companies carry out business, and the way people go about their day-to-day lives. Asia accounts for 50% of the world's total internet users, and this could have a big impact on how the population saves and spends money.

Asia is more than a growth story though. More and more companies are sharing their profits with shareholders through dividends. In fact, dividends paid by Asian companies have grown rapidly over the past decade, and faster than the rest of the world.

Henderson Far East Income aims to take advantage of this trend. It invests in some of the world's fastest-growing countries, and in companies that could pay an attractive income.

The trust currently yields 6.3%, though yields are variable and not a reliable indicator of future income. Investors should be aware the manager uses derivatives (known as "options") in order to boost the income paid. This can erode some of the potential for capital growth, and increases risk. The ability to use gearing (borrowing to invest) also adds risk, if used.

Chinese consumer companies drive returns

Michael Kerley has managed this trust since the start of 2007. Over this time it's grown 207.8%* (in share price terms), which is broadly in line with the FTSE Asia Pacific ex Japan Index. It's had a good run over the past year though, growing 10.1% compared with 8.3% for the index. Please remember past performance isn’t a guide to future returns. Performance can also be volatile at times, especially as the trust invests in higher-risk emerging markets. All investments can fall as well as rise in value, so you could get back less than you invest.

Annual percentage growth
Nov 14 -
Nov 15
Nov 15 -
Nov 16
Nov 16 -
Nov 17
Nov 17 -
Nov 18
Nov 18 -
Nov 19
Henderson Far East Income -9.3% 28.0% 16.8% -2.7% 10.1%
FTSE Asia Pacific ex Japan -7.6% 31.7% 19.6% -2.9% 8.3%

Past performance is not a guide to the future. Source: *Lipper IM to 30/11/2019

Last month the trust released its annual results for the year to 31 August 2019. It reported good stock picking contributed to returns, particularly from Chinese consumer companies, real estate and infrastructure trusts, and the telecoms sector. Kweichow Moutai, the Chinese high-end alcohol producer, and Anta Sports, China's third largest sports apparel company, were some of the key performers.

Kerley remains particularly positive in his outlook for consumer-related companies, which could benefit from Asian consumers' aspirations to buy higher-quality goods and rising incomes. In addition to Kweichow Moutai, Sands China, a Macau casino operator that could benefit from increased tourism spend, and Treasury Wine Estates, an Australian winemaker, were recently added to the trust.

On the other hand, the manager's reduced exposure to banks, which he thinks could be impacted by a longer period of lower interest rates (lower rates makes it harder for banks to make money on cash deposits). Banks including Australia and New Zealand Bank, DBS in Singapore, Maybank in Malaysia, and KB Financial in South Korea were all sold.

Outlook for dividends looks strong

Kerley is fairly optimistic in his outlook for Asia Pacific markets. He thinks they look attractively valued compared with other global markets, while economic growth should also prove more resilient. His focus remains on domestic companies, which could profit from the region's transition from manufacturing and exports, to domestic consumption.

There's been some weakness in company earnings though, and this is something he doesn't overlook. After all, earnings typically support share prices over the long run. But the outlook for dividends remains compelling, in his view. Many Asian companies have relatively low levels of debt, have a sensible take on spending capital, and generate strong levels of cash. This could support dividends in the coming years but of course there are no guarantees.

Find out more about this Trust including charges

Key Investor Information

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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