Seizing income opportunities in the UK

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hello and welcome to questioning the manager today we are joined by David Smith who is the fund manager for Henderson high income David thank you for joining us so if you could tell us a bit about the performance of the trust for the first six months yeah so it was if I break it down to the two quarters q1 was quite tough for markets generally saw quite a big sharp sell-off globally and that really did impact impact the trust really because we saw you know in times of market volatility you expect defensive shares to you know it’s back Oh telcos and utility to outperform those types of markets and actually those are the sectors is actually underperformed which you know given they generally pay quite high dividend yield we’ve got exposure to those sectors and actually that was quite painful to performance actually in q2 we saw quite a strong rebound in both markets and actually in the nav so across across Q to the nav was up actually nine point three percent outperforming our benchmark so actually it was quite encouraging to see that rebound both in the nav and the relative performance against that benchmark now there seems to be a lot of pessimism towards the UK market at the moment but are there any sort sectors that give you reason to be optimistic yeah I mean I mean they’re right there you know sentiment is low on you character ease at the moment in the UK market and you know there are factors out there that justify that you know the political situation brexit situation etc but you have to put it in in in context of you know the UK market is now underperformed global disease for the last five years valuations are quite attractive in the UK and the dividend yield and the UK market is now a 15-year high relative to global indices and actually when you look at the certain surveys of global asset managers you know UK is very much the most underweight region across the globe there so from that starting point actually UK market is looking quite attractive now within the UK market let’s not forget the two thirds of the UK market their earnings are derived overseas so it is still very global index you know you do see good fine good UK company companies with good overseas exposure one of them we like is Johnson Matthey the special specialty Chemical Company it makes pollution control system so cata converters for the likes of cars for likes of industries etc you know and this is a good this is a good business well diversified makes very strong returns but yet it’s trading at significant discount to the global peer group so kind of using that opportunity to own in what we think it’s a very good business on an attractive valuation for the long term now that’s not to forget that’s not ignore some of those domestic companies but you know where we are focused on those domestic businesses we’re looking for the really good quality strong businesses you know the likes of the Ted Baker’s of this world like to the Whitbread of this world got strong brands good market position ins and good underlying growth going forward and have there been any additions to the portfolio blades yeah so one of the new additions to the portfolio was TI fluid systems and it’s a company that makes brake and fuel lines for the automotive industry it’s a good business it’s got high market shares it’s very global so it’s well diversified and it makes critical systems for the industry and that’s kind of what we like market leadership specialized very niche products very high barriers to entry it’s also a business that has a very good cash flow you know produce at a 10 percent free cash flow yield which we find very attractive especially essentially versus that global pay a group as well so good opportunity to try and what we believe is a good business grown a quite attractive race one of the stocks that I’d like to talk about is Tesco which has been in the news quite a lot recently particularly in light of the Asda and Sainsbury’s merger what are your thoughts on the company and why do you own it well I think the company are doing all the right things new management team is now they’ve been there for a couple of years now and I think as I said they’re doing the right things they’re they’re cutting costs and they’re proving operational efficiencies but they’re reinvesting those savings back into the business to make sure the food quality is there let’s make sure the service quality there but to make sure they’re very price competitive and I think that really is a key to get that volume growth coming through which will really mean that their margin upside is going to be sustainable going forward you know anyone can really cut cost to get the margins up but saut about sustaining those not that upside margins into the longer term I think what the management team it’s going to sustain that margin upside through that longer term now despite them despite them seem to have that momentum coming forward I think people are still very skeptical they can hit their long term margin upside targets now we believe they can but even if they don’t they still generating significant amounts of free cash flow I think on their lower end of their margin target they’re still generating a 9% free cash flow yield which really means actually their dividend now there starts to pay the dividend we think that given it can grow quite aggressively certainly over the medium term so you know the the the shares have been good since we purchased it but we think the momentum and the turnaround story has only just begun and there’s a much much further upside to go from here David Smith thank you for joining us pleasure thank you you