Active Income Portfolio reaps dividend rewards

The purchase of Henderson Far East Income (HFEL), brought into the active income portfolio last month, might on the face of it seem an odd decision given the stellar performance of some other Asia-Pacific income funds.

The investment trust has managed a 47% return over five years and a 19.7% rise in 2012 to date, but that performance still lags the returns of the sector leaders. Aberdeen Asian Income (AAIF), the sector leader, has returned 132% over five years, while Schroders Oriental Income has achieved 89%.

Both outperform Henderson in terms of the value of their underlying assets. Aberdeen's 70% rise in net asset value (NAV) far exceeds Henderson's 10% NAV rise, as does Schroders' 32%. However, buying top performers trading at a premium to NAV carries its own risks: investors will pay a 4.35% premium for Aberdeen and a 2% premium for Schroders. And while these sector leaders yield under 4%, Henderson brings in more than five.

That income deficit may seem irrelevant in the context of the far superior total return, but it isn't. The danger for market leaders in any fund or trust sector is of a reversion to the mean, something that is particularly likely in fast-changing Asian markets.

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