Member Info for ade2a

LTI

I forgot the insult

You appear totaly clueless.

LTI

''the NAV will be higher the yield will be lower and have a better chance at sustainability.''

I am afraid it is so.

A fund with a lower yield is more likely to be ablet o maintain that yield.

For single company your statement is correct but HFEL is not a single company turnover exceeds 100% annually. The entire portforlio is bought and sold in a 12 month period.

Do you guys not want the price of HFEL to rise?

In 2021 the fund yielded about 7% on assets of about 325p

At that time to return the 23p or so dividend and 325p NAV (roughly) required the fund to return about 8%.

HFEL assets did not produce an 8% return from then till today.

This has resulted in a loss of asset value which we all know.

Today the return required to maintain the dividend and asset value is up from 8% to 13.7%.

Math can be applied at any time to any value of assets and level of dividend.

For the health of HFEL this 13.7% requirement needs to fall.

If markets suddenly rise because of new info on trade that will help the NAV will be higher the yield will be lower and have a better chance at sustainability.

LTI

Math can be applied any day.

''2021 when the sahare price was 320-330 now around 200p.''

and?

Nothing it does not change the math.

'Asset values are currently low due to the shenanigans of Trump - simple'

It does not change the math.

The fund must return 13..7% to pay 24.8p dividend + asset value at 195.2p

Nothing or your ranting will change that.

You don't understand math you must be a foreigner.

I have been posting since 2021 when the sahare price was 320-330 now around 200p.

Interested parties can check the numbers for themselves. Regardless the math regarding required future retuns is unchanged.

LTI

Yes but math is math.

Yes

HFEL now requires a 13.7% return on assets to NAV to continue to pay 24.8p annual dividend and maintain the NAV.

Tough ask for a fund that has underperformed it's sector over the long term.

Of course it does not mean it cannot happen.

If this number can be brought down over time perhaps there can be long term capital growth.

24,8/195.2 plus 1% for management fees.

Correction

The dividend is probably deducted from the revenue reserve not the capital reserve.

In priciple any shortfall in earnings is deducted from the NAV but NAV does include capital and revenue account.

"As at close of business on 23 January 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 217.1p.

As at close of business on 23 January 2024, the unaudited net asset value per share (excluding current financial year 'revenue items and shares held in treasury) was 216.8p."

Income earnings here are 0.3p (217.1 - 216.8)

As at close of business on 27 January 2025, the unaudited net asset value per share, calculated in accordance with the AIC formula (including current financial year revenue items), was 226.5p.

As at close of business on 27 January 2025, the unaudited net asset value per share (excluding current financial year revenue items) was 222.4p".

In 2025 revenue earnings are 4.1p (226.5 - 222.4) even before waiting for the last 2 or 3 earning days.

Revenue account is clearly strengthening over the last year or so.

Dcgc

"At 15 Jan the NAV inc income was 222.8p ,the NAV excluding income was 218.8 Does this mean if they pay the normal dividend of 6.2p there`s currently a 2.2p shortfall or am I missing something. Do they normally pay part out of capital.?"

You are indeed correct.

However this is normal for HFEL pre the Febrruary and May dividend.

Usually the earnings for the August and November dividend exceed the dividend and the capital is replaced on an accounting basis.

If you compare pre xd earnings before the Feb dividend on the xd date in 2024 and compare to the pre xd earnings 2025 it will give an indication if the revenue account is weakening or strengthening.

For what it is worth the revenue account does seem to be stengthning. I will compare the numbers from 2024/25 on the pre xd date 30-01-2025.

FlyingF

I am a Share holder and a substantial one.

Over the last 20 or 30 years many of these income orientated collective investments are changing the way they pay distributions.

Some older heads like us are then stuck in investments that have a different ethos from when we first bought them.

I have posted previously about Investment Trusts increasing income faster than earnings I am not a fan.

I have been through this with HFEL which had a torrid time from 2018 to 2022 trying to maintain an artificially high yield but this is somewhat different. The specifics:

Promising to pay a dividend of 6.25 yield on NAV. This is a little higher than the typical cash earnings of the company. For reference on launch the company targeted a 4.5% yield somewhat more typical of cash flows.

If the capital growth is particularly strong this is perhaps not a problem as some capital will be recycled to pay the dividend.

The problem will be if or when prices fall. Given this formula 6.25% X NAV if the NAV falls the dividend should be cut. I am not sure they will do so. They themselves expressly stated this is an enhanced dividend policy not an alternative dividend policy.

The other danger here is that the total return on assets after charges need to exceed this 6.25% floor to maintain both the capital level and dividend pay-out assuming dividends are not cut.

I much prefer plain vanilla income funds.

Damien

I understand the 'gambling' sentiment regarding this fund but others on this board might not understand and may think the fund is at risk of losing capital. You might have noticed no name was assigned to my original reply I know you understand the principles.

Hi Damien

I think not different to what I described you can assign whatever names you prefer.

Options trading to increase income is ususally by using covered calls.

This is not so much of a gamble and more of an exchange.

Writing covered calls gives up most potential capital gain for income now. In some cases it can be all the capital gain.

Covered call ETFs generally do not outperform the index on which they write the covered call in fact they ususally underperform by some margin especially in bull markets.

It can reasonably be assumed that the more covered calls writen by HFEL the greater the potential capital gain given up in exchange for income now.

We can now see some of the effects and changes made by the new Manager.

1. There seems to be some improvement in stock picking.

2. There is a determination to defend the income account and this is done in a three of ways. First increase the gearing. This will benefit the fund if prices rise but will be a drag if prices fall. Secondly continue with dividend stripping, washing or whatever you want to call it. This is evident in the 120% turnover of the fund in a single reporting year. This is likely to be a drag on capital performance. Third increase option activity. Option income is now more than 10% of the fund typically it used to be less than 10%. Writing more covered calls will increase the income but limit capital growth in rapidly rising markets. This will help the fund in falling markets as the fund will generate more income with no cost to capital.

This fund is morphing into something like the covered call ETF’s popular in America but not found in the UK.

Good news is that the determination to defend income and the large reserves means that a dividend cut could be many years away. HFEL is in the position it is in today because of new management in 2007 it could take another 10+ years for the effect of these new policies to be fully felt when it comes to the income account.

For total return it is unlikely that HFEL will perform in line or better than it’s sector average let alone the Far East High Yield Index as Damien is lamenting.

Removal of the daily NAV from RNS feed is a very bad sign it shows the managers want to do everything to avoid transparency. Not a good thing to see from custodians of our hard earned money.

Security Name -------------------------- Yield----- Weighting

Samsung Electronics1 ----------------1.98%------ 5.50%

Taiwan Semiconductor ----------------1.60%-------5.30%

MediaTek----------------------------------- 4.28%------3.63%

Macquarie Group------------------------ 2.81%-------3.45%

HDFC Bank --------------------------------1.11%--------3.10%

HKT Trust & HK---------------------------7.93%-------3.07%

Oversea-Chinese Banking-------------5.42%-------3.02%

Hon Hai Precision Industry -----------2.49%------ 2.64%-

ASE Technology--------------------------3.33%-------2.48%

Bharat Petroleum------------------------6.67%-------2.40%

Simple yield of top 10 holdings 3.76%

Weighted yield of top 10 holdings 3.46%

Earnings yield of HFEL earnings to NAV ----------------27.83/222 = 12.5%

Sales of 446,M and purchases of 440,M against assets of 366.M. Turnover is in excess of 100% actually around 120%.

This means that effectively all the shares were bought and sold in a 12 month period.

Option premium income increased to £6,144,000 from £2,869,000.

Dividends of £39,927,000 paid on 163,233,480 shares.

Around 15% of earnings are from option premium or about 3.75p/share.

I couldn’t really find it in these results but gearing is increasing now 6% gearing used to be close to 0%.

£45,000,000 in revenue reserves or about 27p/share which exceeds the annual dividend.

Realist 1

From 2017/18 the capital performance has of course been awful.

The cause of that is still with us that being chasing ever higher yields.

That said the total return from the NAV over 12 months is 19.8% against an average sector return of 21.1%.

The five year return is is 0.9% against an average of 21.9%.

https://www.trustnet.com/factsheets/t/j408/henderson-far-east-income-ltd-ord

Since the Manager has been replace the total return seems somewhat in line with the sector average.

I am still very sceptical of this fund but I just report the numbers.

Given that reserves wil be quite high after the recent earnings the dividend looks safe for some time.

My spider senses tell me that 10% + earnings from a portfolio of stocks with a 4% yield is unsustainable.

I believe that was the essence of my first ever post.

Don't know why but daily NAV reports are now not posted on RHS feed.

The pre xd earnings are as follows

"As at close of business on 23 October 2024, the unaudited net asset value per share, calculated in accordance with the AIC formula (including current financial year revenue items), was 230.6p.

As at close of business on 23 October 2024, the unaudited net asset value per share (excluding current financial year revenue items) was 219.4p."

This means HFEL has earnings of 11.2p to pay a dividend of 6.2p leaving an excess of 5p of earnings to be added to reserves probably at the time of the final results.

Anyone who follows my posts knows my opinion about the earnings. These earnings are absolutely massive. IMHO the asset base is a bit small to be providing such large earnings. The final results will make interesting reading and analysis.

In addition the capital performance is at least competent.

If anyone else has analysis of the income account I will look forward to reading it.