Paul Hilsley has been managing the £212.48m Legal & General Asian Income Trust since its inception in November 2008.
He runs it as a total return fund with an income bias and a strong emphasis on valuation. “This means that we are focused on both income and capital gains by searching for strong relative value opportunities across the markets among high-quality, cash-generating and dividend-paying companies,” he says.
“The resulting yield of the fund remains high due to the type of companies we are buying and the price we pay for them, but the distribution is not the sole focus. Putting it another way, we do not trade to maximise income and the fund is structured to avoid arbitrary rules that may force sub-optimal positions into the fund, which could undermine the total return.”
Mr Hilsley notes the process has not changed since the fund’s launch and that it is consistent with the investment process he pursued since he began investing at Phillips and Drew Fund Management at the start of the 1990s. His approach to investing for Asian income is based on bottom-up fundamental analysis.
“We spend lots of time getting to know corporates and have good relationships with their management via regular meetings and contact,” he says. “We then concentrate on analysing the components of companies – which can often be very complex – to appraise what we believe is the fair value for the business as a whole. We compare this with peers to evaluate whether we believe there is a valuation opportunity and, if so, we invest.”
Mr Hilsley explains that positions are held in the portfolio for an “extended period”, not only to collect cash flows, but also to benefit from prices reversion to fair value. There are 76 holdings in the fund. He points out that the Legal & General Investment Management global macro team provides detailed analysis and insight of the macro environment in Asia.
“There are many moving parts within Asia’s diverse economies and we need to be aware of and appreciate what is going on in order to understand the environment that our investee companies are operating within,” he notes.
Ongoing charges on the I-share class – which is the clean class available through all intermediary platforms – are 0.84 per cent, while the fund is placed at level five out of seven on a risk-reward profile.
The fund’s longer-term performance has seen it ranked top quartile in its Investment Association’s sector across both three and five years, according to data from FE Analytics. In the five years to January 20 2015, it generated a return of 53.34 per cent against the sector average of 36.97 per cent, while the FTSE All World Asia Pacific excluding Japan index returned 41.71 per cent. The fund’s outperformance continued across three years, delivering 34.06 per cent to investors, compared with 24.51 per cent by the sector and 25 per cent by the index.