Henderson Far East Income Reports Turnaround with 12.7% NAV Return and 18-Year Dividend Growth

Currency was a headwind for UK investors. In local terms the FTSE Asia Pacific ex Japan rose 18.5%, with sterling strength of 4.4% trimming returns.

Portfolio moves: tech up, miners down, China rebalanced

Country weights shifted meaningfully: reductions in Australia and India funded a larger – but still “broadly neutral” – China allocation. Miners such as Pilbara Minerals, Rio Tinto, BHP Group and Fortescue were sold as rising capex threatened dividends. Indian IT services holdings (Infosys, HCL Technologies) were exited, with proceeds redeployed into higher‑growth Tencent and Alibaba.

New positions included Quanta Computer, SK Hynix and SK Square on the tech side, plus high yielding Hong Kong and China financials and property such as New China Life and Kerry Properties. Standout contributors included China Hongqiao, China CITIC Bank, China Construction Bank, New China Life, TSMC and Quanta Computer. Detractors included Bharat Petroleum, Woodside Energy, Infosys and Bank Mandiri; some Indian positions were sold, while GAIL and Power Grid remain held for their dividend growth profiles.

Top holdings now skew to North Asia and technology

• Taiwan Semiconductor Manufacturing Company – 5.29%
• Brilliance China Automotive – 4.73%
• Tencent – 4.65%
• China Hongqiao – 3.80%
• Oversea-Chinese Banking – 3.64%

Income mix is evolving too. Financials generated 34.5% of income (up from 22.8%), while China provided 37.5% of income (down from 50.3%) as Taiwan and Indonesia grew.

Premium rating and share issuance: a positive signal

HFEL traded at a premium to NAV throughout the year and was one of a small group of trusts able to issue new shares consistently. The trust issued 17.6m shares at a premium, raising £39.1m for reinvestment. After year end, a further 6.3m shares were issued for £15.6m. Premium ratings do not last forever, but they are usually a mark of investor confidence and help lower ongoing costs by spreading fixed expenses across a larger asset base.

Gearing and options: tools working, but watch the risks

Gearing increased: bank loans rose to £49.591m and net debt to £24.907m. In rising markets, sensible gearing can amplify returns; it also raises risk if markets turn. Written option liabilities increased to £6.680m, while option premium income jumped to £9.583m. The managers are clearly using options to monetise volatility and help fund the dividend while keeping exposure to growth names.

How HFEL stacked up against the region

Market leadership was narrow. North Asia – notably China, Hong Kong, Taiwan and South Korea – outperformed, led by AI‑driven semiconductor strength and corporate reform in Korea. India and ASEAN lagged after a strong multi‑year run, with Indian valuations compressing and macro data softening. HFEL had limited exposure to the weakest areas and leaned into the regional winners, particularly China tech, Chinese state‑owned enterprises and Taiwanese hardware.

Outlook: constructive on Asia’s dividends and growth

The tone is upbeat. Management highlights structural themes powering earnings and dividends: AI‑linked tech supply chains, financial inclusion across populous markets, infrastructure and renewables, emerging Chinese consumer brands, and corporate reform in Korea, China and Indonesia. Valuations remain relatively low and payout ratios are among the world’s lowest, leaving room for dividend growth. Set against this are policy and tariff risks, plus ongoing volatility.

What I think matters for investors

• Income still front and centre: a 10.8% historic yield with 18 years of dividend growth is rare. Coverage was strong enough, with only £1.5m required from reserves.
• Evidence of a real turnaround: positive capital return per share for the first time since 2017 and near‑market total returns, while keeping a high yield.
• Premium rating and issuance: demand is healthy. Issuance at a premium is accretive to existing holders and adds scale.
• Balanced strategy now embedded: the tilt towards growthier North Asia tech plus high‑yield financials and SOEs seems to be working. The switch to the MSCI AC Asia Pacific ex Japan Index as a comparator underlines that shift.
• Risks to watch: higher gearing, reliance on options for income, China policy uncertainty, and a still‑soft backdrop in India and parts of ASEAN. Revenue per share fell to 24.98p from 27.83p.

Bottom line: a credible reset with a market‑leading yield

HFEL has made good on its promise to rebalance the portfolio for both income and growth. The trust modestly lagged the growth benchmarks, but delivered a high, growing dividend and a healthier capital profile. For investors who want Asia Pacific exposure with serious income, this is a much more convincing story than two years ago.

The AGM is set for 12.30 pm on 20 January 2026 at 201 Bishopsgate, London. If you hold the shares and can attend or vote, it’s worth engaging – the strategy pivot is the defining theme, and dividends remain the beating heart of this trust.