JANUS HENDERSON FUND MANAGEMENT UK
LIMITED
HENDERSON INTERNATIONAL INCOME TRUST
PLC
LEGAL ENTITY IDENTIFIER:
2138006N35XWGK2YUK38
HENDERSON INTERNATIONAL
INCOME TRUST PLC
UNAUDITED RESULTS FOR THE
HALF-YEAR ENDED 29 FEBRUARY 2024
This announcement contains regulated
information.
INVESTMENT OBJECTIVE
Your Company's investment objective
is to provide shareholders with a growing total annual dividend, as
well as capital appreciation.
HIGHLIGHTS
·
|
Dividends for the half year
increased by 3.8%. NAV total return 5.1% (debt at par) and
4.8% (debt at fair value), slightly underperforming the 6.6% return
of the benchmark
|
·
|
Your Company has been recognised by
the AIC as a "next generation dividend hero"
|
·
|
Returns from all regions over the
period were positive, but strong performance in North America was
offset by weak relative performance in the Asia Pacific
region
|
·
|
Many of the portfolio's holdings
have performed well, and dividend growth and buybacks have exceeded
expectations across the portfolio
|
·
|
The board remains hopeful that
interest rates will decline later in the year leading to an
improved investment environment
|
PERFORMANCE SUMMARY
SIX
MONTHS TO 29 FEBRUARY 2024
|
2024
|
2023
|
Dividends in respect of the six
months to 29 February
|
3.84p
|
3.70p
|
Total return for the period (debt at
par)1
|
5.1%
|
2.2%
|
Dividend growth since launch to 29 February
2024
|
|
|
|
|
|
|
Year to
31 August
|
Total
dividend
(pence per
share)
|
|
Year to
31 August
|
Total
dividend
(pence per
share)
|
20112
|
1.40
|
|
2018
|
5.30
|
2012
|
4.00
|
|
2019
|
5.70
|
2013
|
4.05
|
|
2020
|
6.00
|
2014
|
4.25
|
|
2021
|
6.30
|
2015
|
4.50
|
|
2022
|
7.25
|
2016
|
4.65
|
|
2023
|
7.47
|
2017
|
4.90
|
|
2024
|
3.84*
|
* Represents the first and second
interim dividends that have been declared for the year ending 31
August 2024
Your Company has recently been
recognised by the Association of Investment Companies as a Next
Generation Dividend Hero, reflecting its record of having
consistently grown its dividend for 10 consecutive
years.
Dividend yields
|
29 February
2024
|
31
August 2023
|
Ordinary
shares3
|
4.8%
|
4.6%
|
Benchmark4
|
3.8%
|
3.9%
|
AIC Global Equity Income
sector5
|
3.4%
|
3.6%
|
Performance
|
29 February
2024
|
31 August
2023
|
NAV per share at period end (debt at
par)
|
180.7p
|
175.7p
|
NAV per share at period end (debt at
fair value)
|
183.2p
|
178.6p
|
Share price at period end
|
156.0p
|
161.5p
|
Discount (debt at par)
|
(13.7)%
|
(8.1)%
|
Discount (debt at fair
value)
|
(14.8)%
|
(9.6)%
|
Gearing at period end
|
1.9%
|
3.9%
|
Total return performance to 29 February 2024
|
6 months
%
|
1 year
%
|
3 years
%
|
10 years
%
|
Since
launch
%
|
Diluted NAV (debt at
par)1
|
5.1
|
3.8
|
25.5
|
126.5
|
194.5
|
Diluted NAV (debt at fair
value)1
|
4.8
|
3.3
|
28.8
|
129.7
|
198.6
|
Share price6
|
(1.0)
|
(8.8)
|
18.6
|
103.7
|
158.2
|
Benchmark4
|
6.6
|
8.5
|
32.2
|
163.0
|
227.1
|
AIC Global Equity Income sector
(NAV)5
|
8.6
|
11.0
|
41.4
|
175.7
|
234.5
|
1 Calculated using published daily
NAVs including current year revenue
2 Four month period from launch on
28 April 2011 to 31 August 2011
3 Calculated using the closing
share price at the period end and the last four dividends
paid
4 MSCI ACWI (ex UK) High Dividend Yield Index (sterling
adjusted)
5 Excludes British & American Investment Trust
plc
6 The Company's share price total return (assuming the
reinvestment of all dividends excluding dealing expenses). Since
inception share price return - launch price including discount
(97.25p)
Sources: Morningstar Direct and
Janus Henderson
INTERIM MANAGEMENT REPORT
CHAIRMAN'S STATEMENT
Performance and markets
During the six months to 29 February
2024, the net asset value ("NAV") total return per ordinary share
was 5.1% (debt at par) and 4.8% (debt at fair value). This included
dividends totalling 3.84p per share (2023: 3.70p), an increase of
3.8% year on year. The total return of the Company's comparator
index (MSCI ACWI (ex UK) High Dividend Yield Index (sterling
adjusted)) was 6.6%. The Company's return on the ordinary share
price was -1.0%.
Inflation remains the key influencer
of interest rate policy in Western economies. It does, however, now
appear that the top of the interest rate cycle has been reached and
that the next moves will be downwards. The question is when these
moves will begin? Most policy makers will look to the US to lead
the way and will be cautious of taking a pre-emptive
decision.
Over the past year the world has
moved on considerably, with new worries replacing previous ones. It
appears that the holiday from history which followed the fall of
the Berlin Wall is over and we are back to the ideological struggle
between capitalism and communism. The West will inevitably have to
re-arm to combat Russia in Europe and China in the Pacific. If Mr
Trump is elected as the US President, then rearmament in Europe may
be quicker and greater than anticipated. Meanwhile, there seems to
be a growing realisation that nuclear energy is not such a concern
after all and with most of the uranium in the world lying outside
of the major oil producing centres this becomes a strategically
strong energy option. As long as we avoid a major war then our
current state of high alert is not necessarily a bad
thing.
Earnings and dividends
The revenue return per ordinary
share during the six months to 29 February 2024 was 1.80p (2023:
1.96p). A fourth interim dividend of 1.92p per ordinary share, for
the year ended 31 August 2023, was paid to shareholders on 30
November 2023, bringing the total dividend paid in respect of the
year to 7.47p per ordinary share (year ended 31 August 2022:
7.25p per ordinary share).
The board declared a first interim
dividend payment for the year ending 31 August 2024 of 1.92p per
ordinary share and this was paid to shareholders on 29 February
2024. Subsequently, we have declared a second interim dividend of
1.92p per ordinary share that will be paid on 31 May 2024 to
shareholders on the register on 10 May 2024.
The long-term objective of your
Company since launch is to provide shareholders with a growing
total annual dividend, as well as capital appreciation. To date, we
have increased the dividend each year and we are very pleased this
achievement has now been recognised by the Association of
Investment Companies ("AIC"), naming us as a "next generation
dividend hero".
Gearing
Well-judged gearing enhances returns
to shareholders. The board's current policy is to permit the fund
manager to gear up to 25% of net assets at the time of drawdown.
Borrowing limits for this purpose include implied gearing through
the use of derivatives. The gearing at the period end was 1.9% (31
August 2023: 3.9%).
Discount control
The Company's share price has traded
at a discount of between 8% and 15% over the period. As at 24 April
2024, the discount was 11.3% (with debt at par) and 12.4% (with
debt at fair value). The board monitors the premium/discount to NAV
closely. The factors that usually influence the discount most are
the performance of the Company and that of world stock markets.
Both of these are covered fully, later on in the fund manager's
review. Two other factors have also been at work, but these are
more technical. Concerns over current legislation that show the
costs of managing an investment trust to be much higher in theory
than in reality have led the average discount of the UK investment
trust sector to rise markedly over the past 12 months. Secondly,
with higher interest rates than in the recent past, bonds have
become a more attractive alternative to higher yielding investment
trusts where prices have weakened in response. When interest rates,
in due course, start to decline we would expect discounts to start
to narrow too.
While we understand the importance
of dividend income to our shareholders we equally appreciate
that they also want to see their capital grow over time and for the
current discount to reduce. To that end, the fund manager has made
changes to the portfolio and is working with the board to consider
ways of better achieving these objectives.
As has been stated before, there is
a distinct limit to the board's ability to influence and maintain
the premium or discount to NAV over the short term. Further, we continue to believe that it is not
in shareholders' interests to have a specific share buy-back
or issuance policy, but retain flexibility to consider share
buy-backs and/or issuance where appropriate (and actively do
so).
Outlook
One new set of worries soon replaces
the previous set. It does seem however that the optimist is always
the long-term winner. We keep a watching eye on world politics and
economics but we can only respond to changing circumstances to a
degree and we must guard against chopping and changing short-term
strategy to fit each day's changing circumstances. In the meantime,
the board remains hopeful that interest rates will decline later in
the year leading to an improved investment environment.
Richard Hills
Chairman
25
April 2024
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and
uncertainties associated with the Company's business can be divided
into the following main categories:
•
|
Geopolitical risks;
|
•
|
Political risks;
|
•
|
Investment activity and performance
risks;
|
•
|
Portfolio and market price
risks;
|
•
|
Tax and regulatory risks;
|
•
|
Operational and cyber risks;
and
|
•
|
Consolidation of the wealth
management industry
|
Information on these risks and how
they are managed are given in the annual report for the year ended
31 August 2023. In the view of the board, the principal risks
and uncertainties at the year end remain and are as applicable to
the remaining six months of the financial year as they were to the
six months under review.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
|
|
The directors confirm that, to the
best of their knowledge:
|
|
|
|
(a)
|
the financial statements for the
half-year ended 29 February 2024 have been prepared in accordance
with 'FRS 104 Interim Financial Reporting';
|
|
|
(b)
|
the Interim Management Report
includes a fair review of the information required by Disclosure
Guidance and Transparency Rule 4.2.7R (indication of important
events during the first six months and description of principal
risks and uncertainties for the remaining six months of the year);
and
|
|
|
(c)
|
the Interim Management Report
includes a fair review of the information required by Disclosure
Guidance and Transparency Rule 4.2.8R (disclosure of related party
transactions and changes therein).
|
|
| |
On behalf of the board
Richard Hills
Chairman
25
April 2024
For
more information please contact:
Ben Lofthouse
Fund Manager
Henderson International Income Trust
plc
Telephone: 020 7818 5187
|
Harriet Hall
PR Director, Investment
Trusts
Janus Henderson Investors
Telephone: 020 7818 2919
|
Dan Howe
Head of Investment Trusts
Janus Henderson Investors
Telephone: 020 7818 4458
|
|
FUND MANAGER'S REPORT
Performance review
Over the last six months the
portfolio produced a total return of 4.8% in NAV per ordinary share
over the period (debt at fair value). This return includes
dividends totalling 3.84p per share, a 3.8% increase year on year.
The portfolio has slightly underperformed its performance
comparator, the MSCI ACWI (ex UK) High Dividend Yield
Index.
Market summary
Equity markets have rallied over the
period. Economic data continues to be mixed; the US economy has
been stronger than expected despite the significant increases in
interest rates around the world over the last three years.
Meanwhile the economies of Japan, Germany and the United Kingdom
were weak enough to register some quarters of negative economic
growth. The Chinese economy has continued to grow but ongoing
concerns remain around the property market and weak consumer
sentiment. Generally investors have become increasingly optimistic
that inflation has peaked and that central banks will be able to
reduce interest rates this year. The combination of stronger US
growth and expectations of interest rate cuts have driven a
recovery in the performance of cyclically exposed sectors, such as
industrials and financials. Companies with less cyclically
sensitive, defensive earnings have generally underperformed. Many
companies' recent quarterly reports suggest that business activity
is not deteriorating but still remains lacklustre and, in some
cases (chemicals, staffing companies, consumer staples), marginally
worse.
The area of Artificial Intelligence
("AI") remains a bright spot due to an increasing number of
companies rolling out their AI focussed semiconductor offerings. It
has been a period during which higher yielding stocks have lagged
the wider market; the MSCI ACWI (ex UK) High Dividend Yield Index
returned 6.6% compared to 13.2% for the MSCI World (ex UK) Index
(both sterling adjusted). One of the primary drivers of this has
been the fact that markets have been led by these low yielding
technology stocks. The market rally in the US has been driven by a
relatively small number of the largest technology companies, which
are expected to benefit the most from new Generative Artificial
Intelligence developments. These have become known as the
'Magnificent Seven' (Nvidia, Microsoft, Meta, Amazon, Alphabet,
Apple and Tesla). The extent to which these companies are
generating actual revenues from AI varies. Nvidia and Microsoft are
already reporting revenues from AI, for the others the
opportunities are more speculative.
Portfolio performance
Portfolio exposures and returns by region
|
Average
exposure
%
|
Total
return
%
|
North America
|
37.3
|
8.1
|
Europe (ex UK)
|
36.8
|
4.6
|
Asia Pacific (ex Japan)
|
21.9
|
3.3
|
Japan
|
2.5
|
7.6
|
Returns from all regions over the
period were positive, but strong performance in North America was
offset by weak relative performance in the Asia Pacific region.
There has been a significant dispersion between sectors and regions
over the period. Many of the portfolio's holdings have performed
well, and dividend growth and buybacks have exceeded expectations
across the portfolio. With the benefit of hindsight though, the
portfolio has had too much exposure to defensive sectors such as
health care, telecommunications and consumer staples which have
lagged the market rally. These sectors have generated good dividend
yields and are growing earnings but their share prices have
underperformed during the cyclical rotation in the equity market
that has occurred since October.
Sector and stock performance review
Technology stocks now make up 15.2%
of the portfolio and have provided the greatest absolute and
relative performance over the period. The largest position is
Microsoft which has emerged as one of the leaders in AI by virtue
of its investment in OpenAI, the creator of ChatGPT, and its
leading positions in cloud computing and business software.
Microsoft was the biggest positive contributor to performance over
the period. Semiconductor companies Qualcomm and Taiwan
Semiconductor Manufacturing were also significant positive
contributors to performance because of signs that the semiconductor
cycle has bottomed. AI activity is starting to broaden out from
semiconductor chip demand to wider computing infrastructure
investments. US industrial company nVent, for example, saw its
share price increase significantly over the period. It is a leader
in electrification related products and is benefiting from the
additional demand for data centre cooling systems.
Technology stocks have not been the
only good performers. The portfolio's largest sector exposure is
the financial sector (18.2% of the portfolio) and it was one of the
best performers over the period. Many companies in the sector
benefit from higher interest rates. Higher rates coupled with low
credit losses are driving strong profit growth across much of the
sector. The portfolio's insurance companies are also benefiting
from rising insurance premiums and improving profitability. US
insurance company Travelers was one of the top performers and the
positions in AXA, Zurich and Dai-ichi Life also performed
well.
As discussed earlier, there has been
a wide dispersion between sector performance. At a sector level the
biggest detractors to performance have been the materials, energy
and consumer staples sectors. Commodity prices have been falling as
Covid supply chain issues got resolved and emergency inventory was
run down and this short-term weakness has weighed on companies in
the sector. Whilst investors in technology like the idea of
investing for future growth, in other sectors they seem less
enthusiastic. Two examples of this are oil and gas company Woodside
and pharmaceutical company Sanofi. Both companies raised their
investment budgets to invest in growth projects and both saw their
share prices react negatively in response to the increased
short-term costs of the investments. Air Products, an industrial
gases company, was the biggest single stock detractor. The company
is investing heavily in low carbon hydrogen projects (known as
green and blue hydrogen technologies) but the projects will not be
ready for a few years and the market would like to see evidence of
demand before rewarding the company for investment.
At a country level the portfolio's
exposure to consumer discretionary stocks in Hong Kong and China
was a detractor. The country has not seen the recovery from the
easing of Covid lockdown that the rest of the world experienced and
positions such as internet retailer Alibaba, insurer AIA and
sportswear retailer Li-Ning underperformed the market. The
positioning in the Asia Pacific portfolio has been changed
significantly and this exposure has been reduced (covered
below).
The Company's long-term financing
means that a fair value and par value return is quoted. The fair
value of the debt reflects a theoretical market price and is
impacted by changes in interest rate expectations in the financial
markets. The fall in interest rate expectations during the period
has increased the fair value of the debt, reducing the fair value
net asset value return.
Portfolio positioning
The most significant change to the
portfolio was the 6.8% increase in exposure to the technology
sector. Many companies in the technology sector benefited during
Covid from increased demand as companies and individuals updated
their systems but suffered a hangover in 2023 as supply chains
eased and sales normalised. Many of these companies'
long-term growth is driven by the trend of increasing technology
adoption across all industries. This trend should accelerate as AI
moves from the testing phase into real world use. We have taken the
opportunity of short-term weakness to add to some of these
companies. The existing technology positions in semiconductor
companies Taiwan Semiconductor Manufacturing and Qualcomm were
added to. New positions were initiated in equipment
manufacturers TE Connectivity (connectors and sensors), Lenovo (PCs
and servers) and Hon Hai (smart phones, tablets and servers) and
technology software and services companies Oracle and Infosys. This
increased exposure was funded by closing a number of positions in
consumer discretionary stocks in China and Hong Kong, and a
reduction in exposures to telecommunications and consumer staples
via sales of Brazilian brewer Ambev, telecommunication company HKT
Trust and a reduction in telecoms equipment company
Cisco.
Income trends
The underlying dividend growth from
the portfolio's holdings has been good but the income return for
the period is slightly lower than last year. One of the reasons for
this is that there have been fewer special dividends from
companies. In recent years the portfolio has benefited from
approximately £1m of special dividends per year from companies that
paused payments during the Covid period but paid catch up payments
later, in particular financial sector companies. The other reason
for the fall in income is that more opportunities have presented
themselves in some lower yielding areas of the market (often at
substantially lower yield levels) and the team are using the
flexibility of the investment structure to hold some lower yielding
stocks with more capital upside potential.
Outlook
The global economy has weathered
increased interest rates better than expected and falling inflation
might allow central banks to cut rates without a significant
increase in unemployment. Falling interest rates with improving
growth has historically been a relatively rare combination but one
that can be positive for equity markets. Irrespective of interest
rate trends we remain positive about the portfolio's potential for
growth due to a number of ongoing trends that are driving activity.
These trends include investments focused on reshoring manufacturing
activity, especially in the technology space, modernisation of
energy supply and increasing AI capabilities.
Ben
Lofthouse
Fund Manager
25
April 2024