Henderson’s ex-UK Income trust to shun bonds at launch

The Henderson International Income trust will be invested entirely in equities at launch to exploit the higher dividends on offer and the potential for growth.

Up to 25% of the portfolio can be invested in fixed interest but manager Ben Lofthouse says he expected none of it would be used at launch in April. Instead, the trust’s heaviest exposure will be to North and South American equities.

“We find we can generate better dividends from high-quality companies through their equities rather than those offered by their bonds,” Lofthouse says.

The group expects global growth to continue to recover, and this also supports a strategy of investing in equities over bonds.

“Equities are more attractive for us based on the assumption the global economy keeps recovering.

“If interest rates go up, we think it will be because growth is coming back, and we are looking for our dividends to grow so that is supportive.”

The US will feature heavily in the portfolio, with about 37% invested in the region, to exploit the recovery.

“From a macro view, the developed world is on a recovery path, and if the US continues with its policy of very aggressive central bank action, that is good for the region,” Lofthouse says.

“The US also does not have high inflation, and although unemployment is still an issue, we are now seeing companies start to add jobs as well, which is positive.”

Lofthouse adds valuations of US large-cap equities are also attractive.

“We do not think they look stretched at these levels.”

A further 8% is invested in companies in South America, while 25% is in Continental Europe and 30% in the Asia Pacific region.

The trust will be avoiding banks in Europe at launch, although Lofthouse says it would invest in other financials in the region.

“In Europe, I favour insurance as it is generating more yield at present, so we have no European banks. We do have American and Asian banks, however,” he says.

The oil price has risen sharply in recent weeks as the Libyan crisis continues to unfold, and Lofthouse is investing around 10% of the fund in oil and oil services companies.

“The high price helps cashflow and helps dividends to be sustained,” he adds.