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Security Name Yield Weighting Yield*Weighting Weighted Yield
Taiwan Semiconductor Manufacturing1 1.64% 5.07% 0.0831%
Samsung Electronics2 1.88% 3.52% 0.0662%
Hyundai Motor2 5.03% 3.17% 0.1595%
Samsonite 2.98% 3.13% 0.0933%
Samsung Fire & Marine 5.17% 3.11% 0.1608%
DB Insurance 5.32% 2.86% 0.1522%
MediaTek 5.42% 2.86% 0.1550%
Midea Group 4.29% 2.69% 0.1154%
BHP Group Limited 5.46% 2.66% 0.1452%
VinaCapital Vietnam Opportunity Fund 2.36% 2.47% 0.0583%
Top Ten Investments 31.54% 1.1889%
Totals Simple yield 3.96% Weighted Yield 3.75%
NAV 223.20
Share price 227.00 Yield 10.84%
Dividend 24.40
We have a simple yield of 3.96% and a weighted yield of 3.75% from top 10 holdings.
"As at close of business on 23 April 2024, the unaudited net asset value per share, calculated in accordance with the AIC formula (including current financial year revenue items and excluding shares held in treasury), was 227.8p.
As at close of business on 23 April 2024, the unaudited net asset value per share (excluding current financial year revenue items and shares held in treasury) was 224.7p."
Pre xd earnings are 3.1p
"As at close of business on 26 April 2023, the unaudited net asset value per share, calculated in accordance with the AIC formula (including current financial year revenue items), was 248.4p.
As at close of business on 26 April 2023, the unaudited net asset value per share (excluding current financial year revenue items) was 246.8p."
In 2023 the pre pre xd earnings were 1.6p.
So 3.1p earned pre May dividend compared to 1.6p in 2023 certainly looks good without digging into the numbers. We might check how those earnings are generated in the report.
Also note that the majority of HFEL earnings are earned in the second half of the year 22p or so of earnings required here to cover the dividend.
Actuary63,
I have always had respect for you technical ability and you have put more effort into your investigation than I did.
However by different methods we both come up with a similar number for capital return 1.4% against 1.5 - 1.6% but then I had a lower portfolio yield. These numbers I think can now be taken as a reasonable estimate of AAIF capital return.
Name Yield Weighting Yield*Weighted Yield
TSMC 1.67% 8.20% 0.136940%
Samsung Electronics (Pref) 2.71% 6.60% 0.178860%
BHP Biliton 5.30% 4.50% 0.238500%
DBS 5.33% 3.50% 0.186550%
Oversea-Chinese Banking Corporation 6.08% 3.30% 0.200640%
MediaTek 4.60% 3.00% 0.138000%
Power Grid Corp 4.35% 2.80% 0.121800%
Venture Corporation 5.26% 2.60% 0.136760%
United Overseas Bank 5.80% 2.50% 0.145000%
Rio Tinto 5.37% 2.40% 0.128880%
Totals Average yield 4.65% 39.40% 1.611930% WEIGHTED YIELD 4.09%
NAV 238.59 Yield to assets 5.00%
Share price 208.00 Yield to share price 5.60%
Earnings 11.97
Dividend 11.75
We can see that the weighted yield for the top ten holdings is 4.09%. I am assuming these fundamentals are typical for the rest of the holdings. If charges were taken from income rather than capital the fund would yield about 3.2% we might want to add about 0.25% = 3.45% for gearing in favourable conditions.
The yield to NAV is about 5% therefore 1.6% let us say 1.5% of our income return one way or another will come from the capital account.
Many UK income funds distribute more than the yield on the underlying assets. There is no free lunch here and part of the income return from many funds is simply a return of our own capital.
2023/24 Final Results
Managers seem somewhat candid about the way the fund is managed.
Good news is that the total return matched the benchmark return. Of course the reduction in management fees is positive for the fund. Earnings did exceed dividends as expected but I think we need to dive deeper into those earnings.
As the managers reported a part of those earnings were from companies that paid a special dividend. Of course this dividend will not be repeated in following years. Furthermore as the Managers report some stocks were sold ‘xd’ this special dividend. The share price will obviously fall leaving less capital to replace this income somewhat weakening the income account in future.
It will be reasonable to estimate that future earnings growth will at best fall or we may have a year or two of lower earnings depending on management and market conditions.
Turnover at 40% is a little high for my liking. This implies the entire portfolio will be replaced in 2.5 years.
Maybe some of you have a different opinion.
Here I will have a quick look at the potential effect of gearing on the income and capital account in rising and falling markets. I will assume 10% gearing charged with interest charged 50/50 to income and capital.
A £25,000,000 fund.
First I would assume the interest rate will be marginally less than the yield on assets purchased. Now for rising markets.
Borrow £2,500,000 @ 4% since interest is only charged 50% to income and the yield on assets is higher than the interest payment there will be an increase in the revenue account. So e.g. interest payment £100,000, additional income from assets £120,000, £50,000 used to repay interest, £70,000 added to income account.
The capital account will be charged £50,000 annually to pay the interest. This will slowly decrease the capital base over time however if the assets grow fewer assets will be sold when the loan is to be repaid and there might be a net gain to the capital account.
This will benefit us as shareholders compared to an ungeared fund.
Revenue is increased by £70,000/£25,000,000 = 0.28% as long as the gearing is maintained.
If asset prices fall. The fall is magnified by gearing in this case 1.1X the fall in assets. Marginally more assets are required to repay interest from the capital account. If the loan is repaid more assets will be required to be sold than bought originally with the loan. This downward pull on the capital account will pressure the income account over time.
In conclusion gearing increases the risk of the fund. This will work in our favour if asset prices rise and there is a small boost to the income account roughly 0.25%. In weak markets pressure on the capital account will lead to modest downward pressure on the income account.
PS if 100 shares are bought when the loan is made and the price rises 100% only 50 shares need be sold to repay the loan. If the price falls 50% 200 shares or equivalent need be sold to repay the loan.
My apologies Oldandtired
You did mention borrowing costs charged 60% to capital.
As always there is no free lunch as investors we need to consider what may happen in various scenarios given the gearing. If I can get my head round it I might write a post.
There is a not so subtle difference between a dividend covered by earnings and yield on the Trust exceeding that of the underlying shares.
If you are not convinced look at what has happened to HFEL over the last 3 years.
Their dividend is still covered by earnings. But how are those earning produced? That is the rub.
Question; is the borrowing interest repaid from income or capital?
These are the sort of things we need to get to the bottom of.
The yield on NAV is 11.75/230 = 5.1%.
Charging to capital is not a free lunch the yield is increased but at the expense of capital returns.
Maybe all is well but I do not like a rapidly rising dividend and stagnant capital values we have seen the end of this story.
Actuary 63 & Barchid,
The suspicions look likely to be correct.
I would suggest the 4.5% yield is likely typical for the portfolio in any event 11.75p / 230 NAV = 5.1%. Given the rough 1% fees the yield should be about 4.1% to NAV. Certainly not as bad as HFEL.
Issue is the higher yield becomes the fixation for the Managers rather than total returns which is what matters for both income and growth investors.
Actuary 63
Surprised you are awaiting the results of my evidence. I certainly will be posting again after the results.
I considered you were the most technically competent on the HFEL board once you have all the info.
The managers always say that.
Have a look at the history of HFEL and the discussion board.
I will be posting on the likely sustainability of the dividends and having a look at the underlying holdings.
Thing is with these income funds there are ways of increasing the earnings beyond that of the underlying holdings.
Too many income funds are performing some of these 'nefarious' techniques.
The recent hike in dividend might be seen as good news I would be somewhat cautious. If the rise in dividend is matched by a rise in capital value that is fine.
I have been on something of a campaign at HFEL for the last 3 years or so the trigger was a dividend yield that was double the yield on the underlying assets. In that time HFEL has underperformed its benchmark and has been the worst performing fund on a total return basis and the Manager has been sacked.
AN increasing dividend matched by rising asset values is fine, an ever increasing dividend yield is a sign of trouble to come.
Https://www.msci.com/documents/10199/ad5fe14c-7e93-4fc5-a3fb-e5ba994b58cc
Link for HFEL MSCI closest benchmark for those who are interested.
James,
"The buy now yield is that but my averages are just under and just over 3 quid not allowing for dividends received so I guess that makes my return around 8%?"
I guess this is the yield to you at the prices you bought. This is why I am asking the questions step by step. This was not my question.
Buying today can we agree the yield is 12% plus or minus and the management fee is 1%?
James,
Given the hostility of this board towards me personally I am not going to give an opinion for some to pooh pooh all my posts. I will discuss with you the information you should consider and you can make up your own mind.