Henderson Far East Income turns volatility into a 25.10p dividend

Strong returns, but a sizeable benchmark gap

Henderson Far East Income Limited (NZX:HFL) produced a strong year for shareholders, with NAV total return rising 26.1% and share price total return increasing 26.4% in the year ended 31 August 2026. The result extended the trust’s recent momentum after its earlier half-year update, which reported a 23.3% NAV return and a 6.25p interim dividend.

The performance was nevertheless well short of the 36.6% return from the MSCI AC Asia Pacific ex Japan Index. That comparison is not a formal benchmark, and the company points out that its income mandate leads it to hold more higher-yielding stocks and fewer of the low-yielding technology leaders that drove the index. The portfolio’s NAV rose to 253.13p per share, while the shares ended the year at 264.50p, representing a 4.5% premium to NAV.

Dividend rises as option premiums transform revenue

The trust paid total dividends of 25.10p per share, equivalent to a 9.5% yield at year-end, and said the distribution was fully funded from revenue. That extends its record of progressive dividends to 19 consecutive years. Revenue return per share increased to 28.16p from 24.98p, leaving a modest addition to reserves rather than requiring a draw on them.

The most dramatic change was in option income. Premiums from the call-writing strategy climbed 188.8% to £27.671 million, helping total income reach £121.342 million and supporting a £105.014 million net profit. The manager attributed the unusually large contribution to favourable pricing during Korean market volatility, while warning that the income could moderate as conditions normalise. Call writing can also cap gains when shares rise above their strike prices, making the strategy an important source of income but not a free enhancement to returns.

Technology exposure grows as portfolio shifts north

Technology increased to 33.9% of the portfolio from 24.4% a year earlier, with Samsung Electronics, MediaTek, Taiwan Semiconductor Manufacturing and SK Hynix among the largest positions. South Korea, Taiwan and China accounted for 20.5%, 22.5% and 24.9% of the portfolio respectively. The manager also added companies including Contemporary Amperex Technology, ASUSTeK Computer, Keppel and Kasikornbank, while exiting or reducing several Indian and Indonesian holdings as financial, operational or policy risks weakened the case for those positions.

The trust also reintroduced BHP and Woodside Energy in August, adding Australian resource exposure alongside existing holdings such as Origin Energy and Macquarie Group. The stated investment case rests on AI infrastructure, semiconductors, automation, cleaner energy and rising Asian consumption, but the portfolio remains exposed to energy prices, currency movements, geopolitical tensions and the possibility that crowded technology trades reverse again.

Share issuance expands assets and reduces net debt

Investor demand allowed HFL to issue 51.285 million new shares for £130.9 million during the year, taking total shares on issue to 233.83 million at 31 August. Net assets rose to £591.9 million from £407.7 million, with a further 9.425 million shares issued by 9 November. Net debt fell to £20.3 million from £24.9 million, although the trust still had £32.0 million of bank loans outstanding at year-end.

That expansion gives the portfolio more capital to deploy, but it also raises the importance of maintaining an adequate premium when issuing shares. The board has proposed changes to the articles of association for shareholder approval at the 19 January 2027 annual meeting, including stronger protections around conflicted investment-manager appointments and directors’ independence. The immediate investment question is whether future growth in assets and distributions can keep pace with the dilution and the trust’s reliance on a strategy whose unusually high income contribution may prove difficult to repeat.