Henderson Diversified Income Limited uniquely combines expertise in investment grade bonds, high yield bonds and specialist secured loans. It aims for consistently high income, capital preservation over all periods and the prospect of capital growth over the long term. The managers have the flexibility to invest across the whole of this asset class, the freedom to invest in secured loans without limit, and directly in equities when appropriate.

• Henderson Diversified Income offers investors diversification of their income portfolios both through exposure away from equity income and also by offering a wide range of lower risk, fixed interest and floating rate instruments.
• The Fund Manager actively asset allocates between fixed and floating rate instruments to take advantage of changing market conditions.
• The ability to invest in Secured Loans when desired means that an increase in the bank interest rate would result in an increase in distributable income and dividends.

• Higher yielding bonds are issued by companies that may have greater difficulty in repaying their financial obligations. High yield bonds are not traded as frequently as government bonds and therefore may be more difficult to trade in distressed markets.
• Investors need to be aware of exchange rates. Not all the investments in this portfolio are made in Sterling, so exchange rates could affect the value of and income from your investment. Full details of risks.

April was a strong month for performance. Credit markets performed particularly well, underpinned by a yield-hungry investor base searching for higher income opportunities than those available in government bonds. Indeed, government bond yields around the world have resolutely failed to rise this year, despite or more likely because of the consensus expectation that this would occur. However, the current environment of supportive central banks, decelerating growth momentum and falling inflation has continued to suit the bond market very well indeed. The dramatic falls in commodity prices during the month only serve to highlight this fact.

The company was active in both the primary and the secondary market during the month but it was in the insurance sector that the most value was found, with a significant position in Scottish Widows being built through its issuance of 7% 30-year maturity bonds and 5.5% 10-year bonds. Bupa also issued bonds during the month, which had the beneficial impact of re-pricing our existing Bupa holding significantly higher by highlighting the value on offer in the name. The company also continued to add to some bond holdings in the secondary market, eg, US telecoms company Century Link, and Iron Mountain (document storage) to name a couple.

Loans had another strong month, with the CS Western European Leveraged Loan Index (hedged to GBP) generating a 1.3% return. During the period we added to our holdings in Grifols (Spain, healthcare) and Wind (Italy, telecoms). A new investment was made in Ista (Germany, utilities).

John Pattullo/Jenna Barnard
April 2013