HFEL half year results

[daveh]

https://www.investegate.co.uk/henderson ... 25400730X/

CHAIRMAN'S STATEMENT



To say that we are in the midst of challenging times is clearly an understatement as we make our way through the impact of a war in Europe, recovery from a global pandemic, a dramatic increase in inflation and an ensuing rise in interest rates. In addition, we continue to face geopolitical concerns relating to Greater China and a banking crisis that may or may not be over just yet.



Our Fund Managers have made more detailed comments in their report and they suggest that while our forecasts are taking longer to come to fruition, they are still supportive of the longer term positive outlook that we have described on other occasions in the recent past. From among the many areas that deserve comment at the moment, there are three that I want to mention now. The first are concerns about the financial sector, not just banks. Holders of AT1 bonds have been badly frightened by the Credit Suisse ('CS') debacle and for good reason. Their treatment in the CS windup is contrary to most expectations and has caused a number of large writedowns. Mid-sized banks have also become a focus of concern in markets around the world and regulators are taking a more careful look at how such institutions have and are being supervised. But these are systemic issues, not portfolio problems. Our exposure to the banking sector is limited to a few of the best capitalised firms, all with strong central bank support. If anything, they are likely to benefit from a shift to quality over time.



The second area on which I want to comment is Greater China, an area that holds considerable importance to our thinking as investors because of the complex relationships between the People's Republic of China, Taiwan and Hong Kong. These relationships have been increasingly fraught and the geopolitical risks associated with these investments have grown. As part of our ongoing review of investment exposures, the Board has recently considered our various positions in Greater China. We have examined the overall exposure, the relative importance of each of the three markets and the details of political risk. That has been a serious and considered review, one that has asked hard questions about the future. While there are no perfect answers, our review has led us to a positive conclusion about Greater China risk over the intermediate term. These markets may continue to have higher volatility, but their direction of growth remains positive.



Performance

Performance in both capital and income terms is the third area on which I wanted to comment. In the six months to 28 February 2023, Asian markets continued to be dominated by China and its rapid consumption-driven recovery following the lifting of Covid-19 restrictions. However, partly as a result of political tensions in the area, this economic recovery led to considerable profit taking in Chinese securities over the course of February. Accordingly, the total return of the FTSE All-World Asia Pacific ex Japan Index was -4.5%. Indian equities also retreated, the FTSE All-World India Index delivering a total return of -14.6%, in the light of possible economic tightening and compounded by the Adani debacle. Across the region, previously defensive winners, such as telecommunications, gave way to a cyclical recovery and our exposure here detracted from performance.



Your Company's performance over the same period reflected these shifts in global markets, with the net asset value total return performance at -4.0%, only slightly above the broad index and 3.9% behind the MSCI AC Asia Pacific ex Japan High Dividend Yield Index. Our Fund Managers provide further insight in their report into the sectors and stocks driving the performance.



Over a longer period of time, the Company aims to produce growth in both income and capital and that very much remains our objective. While we have achieved that result for total returns on a 3, 5 and 10 year basis, that has not been true for capital return alone. Our investment strategy should be leading to an improvement in capital returns as we look ahead and we remain alert to the importance of improvement in this area for shareholders.



Dividends

Despite ever shifting market conditions, income from the portfolio has been solid and we have continued our practice of paying four interim dividends for each financial year. The first and second interim dividends for the year ending 31 August 2023 have been declared in the amount of 6.00p per ordinary share, which is a 1.7% increase on the same period last year.