Henderson's Dividend Fund Wary Of Reits

Source: The Business Times, October 12, 2007

It Favours Banks As They’re The Cheapest Sector In Asia

HENDERSON Global Investors’ Asian equity dividend fund favours banks but is wary of real estate investment trusts (Reits), its manager said yesterday.

Mike Kerley, who manages the US$100 million Horizon Asian Dividend Income Fund, also said the fund was ‘underweight’ exporters due to their vulnerability to a slowdown in the US economy and the weak dollar. Banks are the cheapest sector in Asia due to concerns about their exposure to US sub-prime mortgages, Mr Kerley told reporters on the sidelines of presentation.

He said he also favoured Asian banks because they were a proxy for domestic demand, which will hold up better than exports in the event of a US recession.

‘We’ve talked to virtually all the banks we owned about their sub-prime exposure. It’s possible there may be something we don’t know about but I’m pretty confident the amount is low,’ he added.

Asian bank stocks, like their counterparts in the US and Europe, have fallen in recent months because of concerns about the US housing market. The shares have since recovered from their lows.

Mr Kerley said the Henderson Asian dividend fund’s holdings include South Korea’s Kookmin Bank, Singapore’s United Overseas Bank (UOB), Hong Kong-listed Hang Seng Bank and Bank of China, Australia’s Westpac Banking Corp and Malaysia’s Bumiputra Commerce and Malayan Banking.

UOB had a better franchise and more creative management than Singapore rival DBS Group, he added when asked why the fund did not hold DBS. Mr Kerley had earlier said in a presentation that DBS ‘looked pretty cheap’.

Turning to other sectors, Mr Kerley said he was wary of owning Reits because they had become relatively expensive. Several Reits had been structured to boost earnings in the initial years and it was not clear whether the dividends were sustainable, he added.

In terms of country allocation, Mr Kerley said he liked Taiwan because valuations were attractive. The Taipei stock market may also benefit from a ‘liquidity overflow from China’ as investors sought safer bets.

Mr Kerley said in addition to picking stocks that offer a mix of dividend and growth, the fund also writes put options on its portfolio to lock in gains and will use synthetic products in certain countries to reduce withholding tax.