Meet The Managers

John Pattullo joined Henderson Global Investors in 1997 and is Head of Retail Fixed Income, responsible for UK Retail. John previously spent four years as a chartered accountant at PricewaterhouseCoopers. John is a member of the Institute of Chartered Accountants of Scotland and an Associate Member of the Society of Investment Professionals. He co-manages the Henderson Diversified Income Limited, Henderson Preference & Bond Fund, Henderson Managed Distribution Fund, Henderson Worldwide Income Fund and the Henderson Strategic Bond Fund with Jenna Barnard.

Jenna Barnard is Director of Retail Fixed Income and co-manages Henderson Diversified Income Limited, the Henderson Preference and Bond, Henderson Managed Distribution Fund, Henderson Worldwide Income Fund and Strategic Bond Funds alongside John Pattullo. Jenna joined Henderson Global Investors in 2002 as Credit Analyst, Assistant Portfolio Manager and progressed to Credit Portfolio Manager in 2004. Prior to joining Henderson, Jenna worked as an Investment Analyst with Orbitex Investments. Jenna is a CFA charterholder, and an affiliate member of UKSIP.

Fund Managers' Commentary - December 2011

The Company’s net asset value rose modestly over the month. Credit markets rallied after a poor November. Junior banking bonds and high yield credit outperformed investment grade bonds, gilts and secured loans respectively, though all were positive. The eighth euro crisis summit of the year disappointed, lacking firm action and tangible commitments. However, there were two notable policy actions during the month: firstly, the co-ordinated dollar swap line programme instigated by six central banks meant European banks could get access to cheap dollar funding and secondly, the European Central Bank offered unlimited three-year LTRO (longer term re-financing operations) funding at 1% to European banks in late December. It also lowered the quality of collateral it would accept into these lending operations. €489bn was borrowed by 523 banks - the net new funding amount was just shy of €200bn; this is ‘quantitative easing by the back door’. However, the jury is still out as to whether the peripheral banks can be encouraged to buy their own sovereign bonds whilst the continent slips into recession.

During the month a number of bond buy backs were announced from continental banks and, most notably, Barclays, which helped sentiment in this sector. Daily Mail also made a bond tender offer. Given the outlook we continued to reduce our exposure to financial credit and the odd marginal high yield bond. We hold no continental banks as the balance of financials is held in UK insurers. Telecommunications, media and technology is our dominant sector in the high yield space. Towards the end of December we added some generic risk positions using credit derivative indices. These indices are very liquid and are being used tactically when appropriate.

No new positions were added to the loan portfolio during the month. Leveraged loans were up, with a return of +0.5% for the month. The three-year discount margin, which is the additional return expected over the loan yield at par, was 830 basis points (8.3%), with an average market price of 83.2 where the redemption value is 100. Given all the macroeconomic headlines, the underlying loan portfolio has seen some softening in financial performance during the second half of 2011 but, on the whole, corporate balance sheets are robust. The primary pipeline of new deals in Europe is looking thin at present, driven by buyers concerned about the European sovereign situation. Opportunities in 2012 are likely to come from the secondary market, which has re-priced during 2011, and a few new primary issues. We believe that defaults will modestly increase in 2012, mainly consisting of companies that defaulted in 2008-09 and have still not properly fixed their capital structure.

Going forward, we favour the middle ground of credit in the BBB and BB areas, with selective non-cyclical single B-rated credits. Gilt yields hit record lows - under 2% - during the month so we see no value here. We are also avoiding cyclical CCC and single B credits, which in our view will struggle in a recession. We believe sensible carry trades are the mantra as investors are effectively getting paid for taking on risk. We expect flare ups in volatility but look to exploit these using our flexible gearing and derivative strategy when appropriate. Finally, we paid our fourth interim dividend of the year at the enhanced rate of 1.25p.