Henderson Diversified Income

Last updated 16 January 2020

HDIV offers a compromise between high yield and security…

Disclosure – Independent Investment Research

This is independent research issued by Kepler Partners LLP. The analyst who has prepared this research is not aware of Kepler Partners LLP having a relationship with the company covered in this research report and/or a conflict of interest which is likely to impair the objectivity of the research and this report should accordingly be viewed as independent.

Henderson Diversified Income

Henderson Diversified Income (HDIV) invests across the fixed income markets in search of a high and sustainable yield. It is effectively an income-focused strategic bond fund of the sort more commonly found in an open-ended structure, but with the flexibility to take on gearing, hold more illiquid assets and to remain more fully invested without keeping cash on hand to manage redemptions. These advantages mean HDIV yields 4.7%, while the same managers’ three open-ended strategic bond funds yield 4%, 3.7% and 2.4%.

Co-managers Jenna Barnard and John Pattullo take a cautious approach to credit selection, aiming to generate steady income through the cycle. Issuer selection focuses on identifying non-cyclical businesses with sustainable cashflows which they think should make dividends secure. The managers focus on conventional fixed income – high yield and investment grade – and currently limit exposure to less liquid areas which offer higher yields but greater risk in market corrections.

Their bearish outlook on economic growth and inflation means the trust has done well in periods when government bonds have rallied, such as 2019. Despite their cautious outlook the portfolio’s duration, or interest rate risk, has been higher than many peers, against the consensus view (see Performance section). John and Jenna have thus benefited from their continued ‘lower for longer’ view.

Over 2019, the trust swung from a discount to a premium rating of 5.1% as demand for the shares rallied in a period of falling interest rates. The discount volatility remains high, however, thanks to the high valuations in the bond market, the jittery nature of risk appetite and no use of share issuance to limit the premium (as we discuss in the Discount section).

Thomas McMahon
Thomas is a senior investment trust analyst and joined Kepler in April 2018. Previously he was senior analyst at FE Invest, where he was responsible for fund selection for a range of model portfolios. He covered all asset classes over time, but has particular experience with emerging markets and fixed income as well as UK smaller companies funds. He has a degree in Philosophy from Warwick University and is a CFA charterholder.

Related Research

Key facts

Investment objective

HDIV seeks income and capital growth, aiming for a total return on a rolling annual basis in excess of three-month sterling LIBOR plus 2%

As at:

09/01/20

Trust Name

Henderson Diversified Income

Ticker

HDIV

Management Company

Janus Henderson Investors

Manager Name

John Pattullo; Jenna Barnard;

Association of Investment Companies (AIC) Sector

Debt – Loans & Bonds

12 Mo Yield

4.7%

Dividend Distribution Frequency

Quarterly

Latest Market Capitalisation

£178,999,619

Latest Net Gearing (Cum Fair)

17%

Latest Ongoing Charge Ex Perf Fee

0.91%

Turnover Ratio

57.6%

Shares Outstanding

189,618,240

(Discount) / Premium (Cum Fair)

5.1%

Daily Closing Price

94.4p

Source: Morningstar

Disclaimer

Past performance is not a reliable indicator of future results. The value of investments can fall as well as rise and you may get back less than you invested when you decide to sell your investments. It is strongly recommended that as a private investor independent financial advice should be taken before making any investment or financial decision.

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