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View the article online at http://citywire.co.uk/wealth-manager/article/a632336

Investment Trust Insider: say HHI to some defensive high income

by James Carthew on Nov 13, 2012 at 00:01

The split used to be 75:25 equities to bonds but this was adjusted at the start of 2011 and the management fee arrangements were revised at the same time.

The main thing Crooke did was to cut the notice period to six months, in line with best practice. The new management fee is charged on gross assets, which is not ideal but it is set at 0.5% of average gross assets over two years, so ongoing charges were less than 0.9% last year.

There is a performance fee of 15% of the outperformance of the benchmark, with losses carried forward to future years and total fees capped at 1.5%.

The dividend had to be cut when the fund was reconstructed in 2005 but Henderson High Income still yields 6.1%, one of the highest yields available from what is predominantly an equity fund. There are quarterly dividend payments of 2.075p, making 8.3p for the year.

The flat dividend reflects the difficulty of growing the income from a portfolio of high-yielding equities and bonds. It is the absence of income growth from the bond portfolio that encouraged the increased emphasis on equities at its expense in 2011.

The board is being cautious about increasing dividends, which is understandable given the state of the economy.

Portfolio make-up

The portfolio is similar to most conventional UK income funds and, as you might expect, holds many of the same names as the UK portion of the Bankers portfolio, although there are some differences in weightings.

On the whole, Henderson High Income is underweight the bigger listed UK stocks and very light in miners and banks, only holding HSBC.

Henderson High Income is overweight in many defensive sectors, such as pharmaceuticals and utilities. Crooke is starting to up the weighting in some cyclical stocks – housebuilders, for example – in the expectation of better times ahead, but he stresses the portfolio will remain skewed towards defensives for the time being.

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