During fiscal 2019, the expense ratio climbed to 2.61%. On top of this, a rising interest rate environment puts additional expenses on the fund. No one is complaining is a rising market, though.
This does increase risks for investors as the downside is increased, which is the ugly side of borrowing capital to invest. The leverage is particularly noteworthy as we enter into a period of volatility. When including leverage, this comes up to 1.55%. The fund's expense ratio comes out to 1.19%. Due to the Dodd-Frank Act, only non-cumulative perpetual preferred count. The financial sector issues preferred to help them maintain their required capital ratios. The portfolio is dominated by utility exposure in the equity market while at the same time having a healthy allocation to financials via preferred security exposure. Their approach to investing is "typically investing at least 80% of assets in dividend-paying securities." With that, they will "typically emphasize preferred and common securities in the high dividend-paying utility sector." HTD's objective is to "provide a high level of after-tax total return from dividend income and capital appreciation." They highlight that the fund can be used for "tax-sensitive equity income." After all, even folks in retirement looking for fixed income should have some exposure to equities as well to maintain some diversification. The distribution still remains reasonable, and unless we go even lower than here, I don't see a cut coming. The latest plunge has also pushed HTD back into discount territory from its NAV per share. That would be thanks to their massive run-up earlier in the year. That area is still well into the green for the year. It might be harder to notice that energy hasn't been performing as well lately.
Utilities had also been the other sector that was flirting with positive territory this year before this latest drop lower. That has pushed the sector into the technical bear decline of a 20% drawdown from the previous highs. The latest declines have been most notable as they have taken the energy sector down. That's on both a total share price and total NAV return basis. Despite these relatively safer areas to invest in, the latest push lower has dropped HTD to negative territory for the year. The fund utilizes a hybrid approach of investing in mostly utility equities, and the other half of its portfolio is in preferreds. Since then, they have boosted back up to the high watermark that was achieved pre-cut. They have one distribution cut in their history, in the aftermath of the great financial crisis of 2008/09. John Hancock Tax-Advantaged Dividend Income Fund ( NYSE: HTD) continues to be a fund I rely on as what I would call a core holding or a "set and forget" fund. This article was originally published to members of the CEF/ETF Income Laboratory on June 17th, 2022. Written by Nick Ackerman, co-produced by Stanford Chemist.
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