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Trust Insider: a global income newcomer HINTs at its potential

by James Carthew on Jul 23, 2014 at 14:27

HINT’s returns do lag its benchmark (the MSCI World ex UK) by a little though as it rose by 34.2% over the same period. HINT’s underperformance relative to the benchmark can easily be explained by the absence of emerging market exposure in the index. The MSCI All Countries World Index (which does include emerging markets) has returned 27.9% over the past three years.

HINT is differentiated from its peer group by having no exposure to the UK. I think it is odd it is the only fund adopting this strategy. As an overseas income fund, it complements the UK equity income exposure common to most investors’ investment company portfolios.

The portfolio, which has been managed by Ben Lofthouse since launch, is fairly focused and diversified. There were 60 holdings in the portfolio at the end of May 2014.

The largest holding is tobacco company Reynolds American at 3.1%, and the maximum permitted weighting in one stock is 5% at the time of investment.

The largest geographic exposure is to the US (just over a third of the portfolio) and, sector-wise, the biggest weighting is to financials and industrials.

Like its peers, HINT operates with a modest amount of gearing, using an overdraft facility provided by HSBC. Gearing is limited to a maximum 20%, which is relatively conservative.

The company’s small size does have an effect on its ongoing charges ratio, which was 1.4% in the year to 31 August 2013. This should fall a bit this year as it cut the annual management charge from 0.8% to 0.75% in November 2013 – but I think this is one reason why the fund needs to continue to grow.

Opportunity to expand

HINT has a chance to expand shortly as the conversion date for its 8.3 million subscription shares looms.

These have the chance to convert into ordinary shares at a price of 100p and they are well in-the-money now, with the share price at 114p so it looks likely the gross assets will soon edge closer to the £100 million mark. The dilution effect of this is included within the NAV return.

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