HFEL. Buy or sell?

[yieldhog]

I've owned HFEL in my SIPP for quite a few years and whilst enjoying one of the best dividends of my SIPP I've been disappointed with the seemingly constant errosion of capital value, to the point where I was considering dumping them in favour of one of my other holdings. However, on looking back on HFEL over the past 40-years and comparing with various other investment trusts and indices, on both absolute and total return, I'm more inclined to increase my holding at the expense of, perhaps, IAPD.

Currently, HFEL offers a potential yield of around 11.5%, a small discount to NAV (whereas it normally trades at a premium), modest gearing around 8%, and as far as I can tell a pretty decent quality portfolio.
Here's what the fund manager had to say in the most recent factsheet: about the outlook:

We are confident about the outlook for
dividends considering the excess cash being
generated and the low level of dividends paid out
compared to earnings. We remain focused on
domestic-orientated companies with strong cash
flows and sustainable and growing dividends.

Constructive comments always welcome.

Y

[Gerry557]

As an owner I too have been disappointed with overall return. Yes it's provided a growing dividend but the capital value has fallen much more.

I don't yet know if I have a timing issue, picking issue or both or more even.

I did try and add more as the price fell but my pockets couldn't keep up. So now I'm in sit on my hands mode looking for some solutions.

Looking at the chart for some sort of sign that things have stopped dropping there might be a hint or is it a false flat before the downwardness continues. I might wait until after any santa rally is off the table.

Hopefully someone cleverer than me might come up with some sort of answer than you shouldn't have touched them. If the price stops falling it might be worth a go to add more.

[mike]

The annual report for the FY ending 31 August is due very soon. Indeed, compared to the most recent dates of early November (even late October), it is rather overdue.

[BullDog]

Buy or sell HFEL? I think the only true answer is nobody knows. Under the circumstances, it's probably best to do nothing, neither buy nor sell.

[88V8]

I've owned HFEL in my SIPP for quite a few years and whilst enjoying one of the best dividends of my SIPP I've been disappointed with the seemingly constant erosion of capital value, ....

I have what I used to regard as a maximum holding, have received £12k in divis - gross of tax unfortunately - and lost £18k in capital.
As an income investor, I should say that the capital does not matter, but it does rather irk.
If I could usefully crystallise the loss, I would be out.

HFEL might now be a rattling buy of course. Timing always matters, but one rarely knows what the time is at the moment of purchase.

V8

[Adamski]

Long term you'd think Far East - China, Taiwan etc will do well. Chinese stocks being undervalued compared to US tech giants is difficult to understand. Foreign investors have dumped Chinese stocks but that could easily reverse in 2024. If holding long term and like the dividends, I'd hold.

[yieldhog]

Foreign investors have dumped Chinese stocks but that could easily reverse in 2024

That was one of the reasons I thought it might be worth a closer look.

Another reason was when I looked back at performance over the the past 40-years and was encouraged by what I saw.
30-years ago HFEL was trading around a price of142, 20 yrs ago it was 178, 10 yrs ago it was 316, and today it's 209. I also looked at it on a total return basis for various time periods and it compared very favourably with some of the other ITs that are mentioned frequently on TLF. A lot of the poor relative price performance has been over the past couple of years. Partly I'm sure for the reason mentioned by Adamski. It may also partly be caused by investors dumping the fund due to that poor 10-year price performance.

I definitely recommend doing your own research before either dumping them or buying them.

Y

[Dod101]

Long term you'd think Far East - China, Taiwan etc will do well. Chinese stocks being undervalued compared to US tech giants is difficult to understand. Foreign investors have dumped Chinese stocks but that could easily reverse in 2024. If holding long term and like the dividends, I'd hold.

OTOH, you need to think what you might do with the proceeds if you sold. I gave up on HFEL long ago and have not regretted it. Given the yield you could buy Legal and General, get a similar yield and a reasonable expectation that you will not lose much capital.

I do not anyway like Henderson as an investment house.

Dod

[G3lc]

How interesting, what don’t you like about Henderson as an investment house?

[Dod101]

How interesting, what don’t you like about Henderson as an investment house?

I am full of prejudices and never seem to have had a good experience with any fund managed by Henderson.

Dod

[BullDog]

How interesting, what don’t you like about Henderson as an investment house?

I am full of prejudices and never seem to have had a good experience with any fund managed by Henderson.

Dod

I commend Law Debenture Corporation, LWDB. Does exactly what it says on the tin. Part of the Janus Henderson IT stable.

[moorfield]

I bought HFEL last year into a diverse portfolio of ITs. Maybe ive been lucky with my timing, maybe I haven't. As/when my topup rankings and cost/income limits signal to topup more, I will do. That's unlikely to happen for another 6-9mths at least, and if the price rises again, maybe even longer.

I hold no prejudices about any IT managers. Life's too short.

[whitty]

Law Debenture are not actually part of Janus Henderson investment trust range, they are an independent investment trust however are managed by 2 fund managers who also manage Lowland who are part of Janus Henderson

[Steveam]

I've owned HFEL in my SIPP for quite a few years and whilst enjoying one of the best dividends of my SIPP I've been disappointed with the seemingly constant erosion of capital value, ....

I have what I used to regard as a maximum holding, have received £12k in divis - gross of tax unfortunately - and lost £18k in capital.
As an income investor, I should say that the capital does not matter, but it does rather irk.
If I could usefully crystallise the loss, I would be out.

HFEL might now be a rattling buy of course. Timing always matters, but one rarely knows what the time is at the moment of purchase.

V8

A definite disappointment but I'll probably leave them be. My dividends (a third of which are taxable) just happen to equal the capital loss. Perhaps they'll come good eventually.

Best wishes,

Steve

[Arborbridge]

HFEL is one of my problem children, but this statement by the manager is quite interesting:

We are confident about the outlook for
dividends considering the excess cash being
generated and the low level of dividends paid out
compared to earnings. We remain focused on
domestic-orientated companies with strong cash
flows and sustainable and growing dividends.

Low level of dividends compared to earnings? Wow, I didn't think so. But it sounds a chipper statement.

Anyhow, what I take some comfort from is that the discount is currently quite small . Yes, I know that's because people need income, but if the discount were large one might be more concerned.

As regards income, this is one of my "big hitters" and I don't see much sense in ditching it for the moment - after all it is only part of a large portfoio and I am really not concerned about losing capital.
Which begs the question: at which point would I think of ditching it? Maybe never, but trimming, possibly.


Arb.

[daveh]

I'm sitting on a loss on HFEL of 10% and that includes dividends. They also sit at position 3 in my HYPTUSS spreadsheet for topping up, behind Vod at #1 and NWG at #2. I bought them as an alternative to IAPD (high yield Asia Pacific ETF). Those are showing an 8% gain including dividends but are showing a loss on capital alone.

I also did a calculation to see if rather than buying HFEL I'd spent the money on IAPD would I have been better or worse off? The answer is better off. If I'd bought IAPD capital would be better by 1.47x income would be worse at 0.76x, but total return would have been 1.28x better. IAPD appears at 16th in my HYPTUSS top up list.

So do I buy more HFEL to lock in the very good dividend and hope that the share price grows? A problem is that if it is not sitting at a large discount to NAV then that requires the underlying shares held by the IT to also re-rate to a higher price to see an increase in the HFEL price, unless we see HFEL moving to a significant premium to NAV (and is that likely at the moment?)

[bluedonkey]

"Low level of dividends compared to earnings." This sparked my interest so I did a little digging.

The half yearly report for the HFEL IT for 6m/e 28.2.23 shows on page 10 income of £8,827k and dividends of £18,780k. The comparative figures show a similar deficit: £9,907k income, £17,845k dividends. However, the picture is perhaps not as bad as that looks as the y/e 31.8.22 shows income £37,102k, dividends £36,067k.

We'll have to wait for the accounts for y/e 31.8.23.

[Arborbridge]

"Low level of dividends compared to earnings." This sparked my interest so I did a little digging.

The half yearly report for the HFEL IT for 6m/e 28.2.23 shows on page 10 income of £8,827k and dividends of £18,780k. The comparative figures show a similar deficit: £9,907k income, £17,845k dividends. However, the picture is perhaps not as bad as that looks as the y/e 31.8.22 shows income £37,102k, dividends £36,067k.

We'll have to wait for the accounts for y/e 31.8.23.

Thanks for that - we had better wait for the results. It seems unlikely that they would give such a statement if it weren't true - there are, however, many ways of throwing sand in our eyes to disguise what is really happening.

[Arborbridge]

I'm sitting on a loss on HFEL of 10% and that includes dividends. They also sit at position 3 in my HYPTUSS spreadsheet for topping up, behind Vod at #1 and NWG at #2. I bought them as an alternative to IAPD (high yield Asia Pacific ETF). Those are showing an 8% gain including dividends but are showing a loss on capital alone.

I also did a calculation to see if rather than buying HFEL I'd spent the money on IAPD would I have been better or worse off? The answer is better off. If I'd bought IAPD capital would be better by 1.47x income would be worse at 0.76x, but total return would have been 1.28x better. IAPD appears at 16th in my HYPTUSS top up list.

So do I buy more HFEL to lock in the very good dividend and hope that the share price grows? A problem is that if it is not sitting at a large discount to NAV then that requires the underlying shares held by the IT to also re-rate to a higher price to see an increase in the HFEL price, unless we see HFEL moving to a significant premium to NAV (and is that likely at the moment?)

Looking over 5 or 10 years - my sort of holding period - neither look great!

[bluedonkey]

The comment could perhaps relate to the accounts of the underlying companies rather than the accounts of the IT itself. Anyway, it'll be clearer when we have the annual a/cs.