What does Henderson International Income Trust (HINT) do?

The Trust’s mandate is to generate dividend growth and capital appreciation over the medium to long-term. We aim to do this by investing in all sizes of companies which we believe have attractive dividend yields, and are strong and cash generative to be able to grow those dividends over time.

Importantly the Trust looks to find these companies from across the globe but not the UK, offering investors the chance to diversify from any UK investments they may have, and in particular UK based income generating stocks.

What lessons have you learned from 2016?

The past year has highlighted that it is very important to look beyond headline economic data.

Markets have been used to doing this with regards to China for a long time, but the rate of Gross Domestic Product (GDP) growth in developed markets has disguised the fact that a large percentage of the population has not benefited from either the economic or market recovery.

This in part led to the surprise vote in the UK to leave the European Union and more recently the election of Donald Trump as President of the US.

It is also worth noting how poor the polling industry was at predicting either outcome. Investors’ forecasts and predictions regarding the market’s reactions following both events were also inaccurate.

Going forward, it is clearly going to be important to consider the effects of forthcoming European elections on markets.

What are your thoughts towards the US election?

Clearly an unexpected vote, what surprised was not only the election of Donald Trump but also the majorities that have resulted in both the House of Representatives and the Senate.

This gives Mr Trump and the Republican Party more power to change the legislature and push more policies through in comparison to the gridlock that Mr Obama faced during his two terms.

Markets have reacted positively, expecting more infrastructure spending and, more promisingly, tax cuts. This could stimulate the domestic economy on two fronts: foreign businesses may be more willing to look at the US to do business there, and secondly, US businesses may finally start to look at repatriating the large amounts of cash they currently hold offshore.

Microsoft is a good example – it has around $100bn in cash and cash equivalents parked offshore.

Around one third of the trust is held in US stocks; how has this part of the portfolio performed since the election?

In general it has been financial services sector stocks that
have performed well since the election.

It seems investors believe policies from a business friendly government will lead to higher growth, which would lead to higher interest rates as the Federal Reserve becomes more hawkish, which could in turn lead to higher lending margins. In the US sleeve of the portfolio our holdings include JP Morgan Chase and Synchrony Financial.

The dollar has also been strong and I believe it will continue to be strong, which benefits investors in an investment trust that pays its dividends in pounds sterling.

What are the key themes likely to shape the market in 2017?

With the largely unexpected election result in the US and the Brexit vote in the UK, it is highly likely that fiscal austerity will no longer be a key focus.

Other countries have the same issues as the UK and the US and will have noted the two outcomes.

There is likely to be a shift from monetary stimulus to fiscal expansion, which may lead to higher interest rates and bond yields, and a pick-up in inflation from current low levels.

There is also likely to be increased anxiety around European elections and fears over any increase in protectionist policies, given global trade currently accounts for 60% of global GDP.

What’s your outlook for dividend growth?

My thoughts are that dividend growth will be fairly moderate
in 2017.

Dividend growth has actually been very strong in recent years, and pay-out ratios – the portion of earnings a company pays its investors – have been rising steadily.

It seems therefore that at the headline level, especially in the likes of the pharmaceutical, oil and gas, and the banking sectors – growth won’t be that strong. But pockets can be found and we believe we can find these and grow the dividend for HINT portfolio investors.

What CAN investors expect from your portfolio in the
coming year?

The strategy’s approach will be unchanged in that it will aim to achieve income and capital growth by focusing on cash-generative companies with attractive yields.

The global equity income universe continues to be in good health and it is possible to find companies offering real dividend growth in all regions. Europe as a region looks attractive as austerity has ended and banks are now lending again.

As ever, it is important not to pay too much for this income. With this in mind, the strategy has broad exposure across geographies and sectors, and we believe it has the potential to provide good returns to investors in a variety of market conditions.

About the manager and the trust

Ben Lofthouse joined Henderson in 2004 as an Investment Analyst on the Equity Income team. He became a fund manager in 2008 and since then has managed a range of equity income mandates in both pooled funds and investment trusts.

Prior to joining Henderson, Ben trained as a Chartered Accountant with PricewaterhouseCoopers where he started his career in 1998. He graduated from Exeter University with a BA (Hons) in Business Economics and is a CFA charter-holder.

Ben is a dividend seeking, valuation driven investor, meaning he looks for companies that have strong fundamentals, good balance sheets and attractive cash flow characteristics that can support growing dividends. He will also tend to focus on companies that yield above 2%.

Ben has been the trust’s manager since its launch, in 2011.

It contains a broad spread of industry exposures, and has three geographical regions in which it focuses: North & South America, Europe, and Asia Pacific.

Any one region will never have more than 50% of the portfolio invested within it in order to ensure geographical diversification. Ben asset allocates to these regions, and is supported by fund managers with regional expertise.

Before investing in an investment trust referred to in this article, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser.

The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

Nothing in this article is intended to or should be construed as advice.  This article is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment.

Issued in the UK by Henderson Investment Funds Limited (reg. no. 2678531), incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE, and authorised and regulated by the Financial Conduct Authority to provide investment products and services.

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