How the last 10 years have shown investors that diversification is king - Ben Lofthouse
As an investment trust that has recently celebrated its 10th anniversary, we have experienced an immense period of fluctuation and change.
To take you back to April 2011; the UK was still emerging from the aftermath of the financial crash, Prince William and Kate Middleton were due to be married; the UK was a leading figure in the European Union; and at no point would I, or anyone else, have predicted that in 10 years’ time millions of us would be working remotely from our homes full time.
While we have reached a number of cultural milestones in the past 10 years, investors are faced with some of the same issues they were a decade ago. In 2011, traditional sources of income such as cash, bonds and gilts were offering investors very low yields, and this remains true in 2021. While effects of the COVID-19 pandemic have been felt universally across global markets, income-seekers have suffered particularly severely as a consequence of corporate dividend cutting and suspensions.
This has only added to the challenging environment of record-low interest rates and falling government bond yields that is the current norm for investors and savers.
As a consequence, investment trusts have received greater attention for their ability to support and maintain dividend payouts, even during challenging periods, by using their revenue reserves.
Henderson International Income Trust (HINT) was specifically designed as a complementary diversifier for UK income-driven investors by providing a high and rising level of dividends, as well as capital appreciation, over the long term from a focused and internationally diversified portfolio of securities outside the UK.
The Janus Henderson Global Dividend Index shows that while dividend growth may have fallen in Europe excl. UK by 31.7% in 2020, in North America we actually saw dividend growth of 2.6%. Global diversification then is an attractive opportunity for investors and is important for a well-rounded portfolio. By having exposure to multiple markets, investors can better shield their assets from volatility that is concentrated in certain environments.
HINT currently yields 3.6%* 1 per annum and pays dividends on a quarterly basis, providing investors with a regular income stream. To put this into context, if you had invested £10,000 in HINT at launch and reinvested the dividends paid in more shares, your investment would now be worth £23,056, a net asset value total return of 156%. 2 For comparison, the FTSE delivered a net asset value total return of 68% over the same period. This is the benefit of diversification.
Looking ahead to the next decade, while the future remains impossible to predict both culturally and financially, the world will always adapt to change, and the pace of change is accelerating. Our reliance on tech continues to increase, with access to the internet now being a basic need that just wouldn’t have been the case 25 years ago. Companies are evolving to change with the needs of the time. From the growth of the renewables sector and the wider focus on green technology investment, to a renewed focus on housebuilding and infrastructure projects to reinvigorate economies following the pandemic, I have no doubt that the next 10 years will be just as varied and unpredictable as the last.
Ben Lofthouse, Fund Manager of Henderson International Income Trust
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