Look east for income

In the hunt for dividends, F&C Managed Portfolio Trust, a multi-manager investment trust launched last year to invest in closed-ended investment companies, has taken a stake in Henderson Far East Income.

Peter Hewitt, manager of the F&C Managed Portfolio Trust, says: "The opportunity base for income investors in overseas investment trusts has widened considerably - you can now get quite a few overseas trusts with a decent income. In the Far East (excluding Japan), as companies have become more interested in paying dividends, there are three quite chunky trusts to choose from. I now have positions in all three of these trusts."

His purchase of Henderson Far East Income adds to established holdings in Aberdeen Asian Income and Schroder Oriental Income. Although the longest established of these three Asian income trusts, the Henderson fund was the last to make it into the portfolio. Mr Hewitt says he initially avoided the trust because it used derivatives to achieve its income, but that it has since changed to reflect the dividend-paying capabilities of the stocks it holds, "which is a more honest source of dividends".

Henderson Far East Income was the first investment trust to specialise in Asian Income. Created in 1989, it has the flexibility to invest right across the Asia Pacific region. The company has maintained or increased its dividend every year since launch and has the highest yield in its sector.

Mr Hewitt bought into the trust at around par (it has recently been trading at a slight premium to net asset value), with a yield of 5.75 per cent. "There was no point in waiting for it to move out to a big discount; where the market sees a sustainable dividend, the rating tends to stay tight," he says. "The trust has no gearing, and I like the manager, Michael Kerley - he's quite sparky."

Michael Kerley joined Henderson in 2004 to manage Pacific equities and has managed Henderson Far East Income since February 2007. Although his tenure on the fund is short, he has 15 years' investment experience in the Asian market, previously with Invesco Asset Management where he developed a value driven investment style.

Mr Kerley strongly believes that income investors who are wedded to the UK should take a closer look at Asia. "As Asian markets mature we have seen corporate governance improve, and an increasing focus on shareholder value," he says. "Several of the world's leading companies are now based in Asia and their managers know that a steady and attractive dividend stream helps to support share prices. They need to attract and maintain a loyal shareholder base, and shareholders like dividends."

Mr Kerley has been moving the Henderson trust's portfolio back towards China, where its weighting is now nearly 20 per cent. Mr Hewitt approves of this decision, saying: "The Chinese market was down by two-thirds in 2008 and is probably in for another difficult year, but equally is probably representing outstanding value."

Note that a proposal will be brought forward in 2009 (and every seven years thereafter) for Henderson Far East Income to continue in existence. If the resolution is not passed, the board is obliged to bring forward proposals for the liquidation of the company or for a restructuring of its capital on terms that include a cash alternative.

Key fund data:

TOP TEN HOLDINGS

GEOGRAPHIC BREAKDOWN

Source: Henderson and Fundamental data for the Association of Investment Companies