The Henderson Diversified Income Trust invests mainly in bonds (debt) and loans with the aim of providing income for shareholders, and the prospect of growing their investment over the long term.

What does it do?

The Trust aims to provide an income to investors as well a growing investors’ capital over the long term. It can invest a wide range of bonds and loans depending on where the managers believe the best return will be. It has a target of providing an income 2 percent above LIBOR which is a measure of the interest rate at which banks lend to each other.

How does it do it?

When interest rates are low, the Trust tends to invest in bonds which provide a fixed rate of interest. As rates rise the trust can then switch to loans which pay a variable rate of interest, so that as rates change over time it can still aim to provide an income to investors.

This means the managers have to balance finding companies who won’t default on the loans made to them, but also finding the best income opportunities at the same time. This all happens over what’s known as an economic cycle as countries move through growth phases to recessions.

Why do John and Jenna do it?

It’s the flexibility that makes this Trust a little different from other investments out there and therefore really interesting to manage. We can move between being 100% in one asset class to being 100% in another, depending on how we see interest rates changing and how much we think companies will default on their debts.

In reality it’s all about find a balance depending on what we think is right at any given time in an economic cycle. The challenge for us is finding investments which can provide consistent income which is better than you could get elsewhere – and in these current times when interest rates have been so low for so long that’s a real challenge.

We very much enjoy working together and bounce ideas off each other and our wider team all the time. We also work with a specialist team within Janus Henderson who are experts in loans and that’s a relationship which works very well.

What are the Risks?

Share prices go up and down. If you sell your shares at a lower price than you bought them, you will have lost money. You should be comfortable with this risk before investing. See Step 2 for more information on risk, if you haven’t already.

Active management techniques that have worked well in normal market conditions could prove ineffective or detrimental at other times.

This Trust is suitable to be used as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this T`rust.

The return on your investment is directly related to the prevailing market price of the Trust’s shares, which will trade at a varying discount (or premium) relative to the value of the underlying assets of the Trust. As a result losses (or gains) may be higher or lower than those of the Trust’s assets.

The Trust may borrow money (gearing) as part of its investment strategy. If the Trust utilises its ability to gear, the profits and losses incured by the Trust can be greater than those of a Trust that does not use gearing.

Higher yieldings 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.

All or part of the Trust's management fee is taken from its capital. While this allows more income to be paid, it may also restrict capital growth or even result in capital erosion over time.

Source: Morningstar