Henderson Far East Income Ltd (LON:HFEL) lead fund manager, Mike Kerley, welcomes the resumption of earnings growth in the region after five years of stagnation. He says that attractive opportunities still abound in his favoured areas of cash-generative companies offering high dividend growth potential or high yields, with the recent rise in P/E ratios across the region only partially addressing the longstanding undervaluation versus the rest of the world. The portfolio currently has a cyclical tilt, with more in financials and consumer stocks and less in utilities and telecoms, yet HFEL still pays a high yield (currently 5.4%), fully covered by income. The fund has tended to trade at a small premium to NAV and issues shares to meet demand. The recent introduction of a tiered management fee above £400m will reduce total expenses for investors as HFEL grows.
Investment strategy: Focused, total return portfolio
HFEL’s managers construct a portfolio of 40-60 stocks, broadly balanced between those on high starting yields and those with better dividend growth potential. Ideas may come from company meetings, industry research or quantitative screens. All potential investments are analysed using a variety of metrics; the aim is to identify well-managed, cash-generative companies whose share prices do not reflect the underlying business value. The managers currently favour domestically orientated companies that can benefit from Asian consumers’ increasing purchasing power.
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