HFL – Half-year Report

LEGAL ENTITY IDENTIFIER: 2138008DIQREOD38O596 HENDERSON FAR EAST INCOME LIMITED Unaudited results for the half-year ended 29 February 2024 INVESTMENT OBJECTIVE The Company seeks to provide shareholders with a growing total annual dividend per share, as well as capital appreciation, from a diversified portfolio of investments from the Asia Pacific region. HIGHLIGHTS o Net asset value total return 8.2% o Share price total return 4.6% o FTSE World Asia Pacific ex Japan Index 5.1% CHAIRMAN'S STATEMENT After a period of difficult relative and absolute performance, it was encouraging to see substantially better investment returns during the first half of our financial year in response to previous restructuring and the planned changes intended to improve capital returns. As Sat has succinctly outlined in the Fund Manager's report, the changes to our portfolio produced better results that reflected the key themes and altered country weightings that were implemented earlier. Better results were supported by both macro factors and company specific developments across the region. Our earlier decision to significantly reduce exposure to China as it struggles to adjust in a post-Covid environment has proven a good one although we have now reached a point that some valuations in that market are too compelling to ignore. As a result, we expect to add selectively in Chinese names at or around current levels, taking advantage of what may well be unusual dividend and profit opportunities. In general, it has been encouraging to see Asian markets increasingly responding to strong company-specific fundamentals. Performance was also driven by such themes as corporate reform in Korea, strong macro-economic data in India and Indonesia and the technology sector which has been a beneficiary of artificial intelligence. As we had discussed in detail in the last annual report, the Fund Manager has made a number of changes to the Company's country and sector positioning to take advantage of these investment themes. As we have noted before, our revised approach is intended to ensure that your Company benefits from the many structural growth opportunities in the region whilst also capturing the potential for significantly higher dividends. Market expectations for changes in interest rates and the prospect of an easing in monetary policy by central banks in the US and Europe were also important for the direction of equities. There is now a clear expectation for rate cuts in 2024 and we believe that Asian markets are well placed to benefit in this environment. Inflation in Asia has remained subdued and China has continued to pursue economic stimulation in the face of relatively slow growth. We would expect rate cuts in the major developed economies to provide stimulus to the Asia region, which already offers attractive valuations. We are also encouraged by efforts on the part of the Korean government to pursue policies to improve shareholder returns and see this as another example of efforts in the region to address the current low dividend payout ratios. This makes for a compelling blend of growth and income, providing a favourable backdrop for the Company over the balance of the year. Performance I am pleased to be able to report that the NAV total return for the six months to 29 February 2024 was 8.2%, ahead of the FTSE World Asia Pacific ex Japan Index which returned 5.1% and only slightly behind the MSCI AC Asia Pacific ex Japan High Dividend Yield Index which returned 10.0%. This follows the rebalancing of the portfolio in the latter part of the 2023 calendar year which was addressed in both my statement in the annual report, and the update from the Fund Manager. Dividends For the financial year ending 31 August 2024, the Board has to-date declared the first and second interim dividends each in the amount of 6.10p per ordinary share. This represents an increase of 1.7% on the dividends declared in the first half of last year. The second interim dividend will be paid to shareholders on the register at 26 April 2024 and trade ex-dividend on the 25 April 2024. Payment will be made on 31 May 2024. Share repurchases Nearly all investment trusts, regardless of their sector focus, saw a significant increase in their discount to net asset value in September 2023, with the average trust discount reaching -19.0%. This reflected the rapid increase in interest rates and thus, the shift in the perceived risk-free rate of return for fixed income and cash investments compared with equities. Our Company fared considerably better than most investment trusts with the discount reaching -6.2% at its widest, and averaging only a discount of -3.9% for the six months to 29 February 2024. Having been a regular issuer of shares at a premium, your Board decided that it was appropriate for the Company to repurchase shares during this period of an expanded discount. Between 31 August 2023 and the date of this report, we have repurchased a total of 806,385 shares in the market as part of our ongoing discount management programme. The Board continues to closely monitor the discount and the demand for the Company's shares. Board composition Carole Ferguson and Susie Rippingall joined the Board on 1 December 2023 and we said goodbye to David Mashiter following the annual general meeting held on 24 January 2024. We believe this refreshed Board will bring new challenge and different views on the oversight we bring to the Company's business, which can only be good for shareholders. We once again want to thank David for his outstanding contributions to the Company with our best wishes for the future. Outlook While there will be new challenges during the second half of our financial year, there are certainly good reasons for optimism about investment returns in the Asia Pacific region over the balance of our year. Attractive valuations, a return to high growth and a revitalized focus on increasing dividends all suggest a positive outlook. There are exciting opportunities across a number of sectors and markets in the region despite our ongoing macro-economic concerns in China. We remain open to investment ideas within China given the current low valuations, but we have yet to see a genuine resolution of the many structural issues that beset the People's Republic of China. The government certainly has the wherewithal to successfully tackle these, but they will take time to address. The strength of the Asia Pacific region lies in the diversification of its many market economies at widely different stages of development. This offers a combination of mature markets with high dividends and emerging markets offering dividend growth. These differences are reflected in the composition of our portfolio and your Company is well placed to capture growth as well as high dividends. This will be important as we seek to recapture capital performance whilst maintaining a high income focus in the years ahead. Ronald Gould Chairman 25 April 2024 Please refer to the PDF version for the full announcement For further information please contact: Sat Duhra Fund Manager Henderson Far East Income Limited Telephone: +65 6813 1035 Dan Howe Head of Investment Trusts Janus Henderson Investors Telephone: 020 7818 4458 Harriet Hall PR Director Investment Trusts Janus Henderson Investors Telephone: 020 7818 2919 End CA:00430153 For:HFL Type:HALFYR Time:2024-04-29 08:30:03