This $85m (£60m) fund was launched in 2011 with the aim of delivering income and capital appreciation by investing in dividend-paying firms in the Asia-Pacific region.
Manager Tony Jordan explains: “We believe we’re in an era of structurally low interest rates, and investors living longer will need to protect their income in real terms as well as receiving high yields.”
The manager adds: “The emphasis is on high-yielding stocks. The earnings [and] balance sheets have to be able to sustain the payouts, but I typically focus on top-quintile, high-yielding companies. Although turnover is low, we don’t believe in holding stocks once they become expensive.
“Once [the companies] don’t pay the yields we require or if they become expensive by any other metric, we tend to rotate into other stocks or sectors to replace them.”
Mr Jordan acknowledges sometimes that means turnover in the portfolio can be quite high over a short period of time. In theory, the manager can invest across sectors and countries in the region but his investment discipline has resulted in some biases in the fund.
“India and Korea have not had a habit of paying out high dividends, and we tend not to be in the more cyclical areas of the market given that we can’t necessarily predict the long-term payouts, but generally we can go where we like,” he says. “Liquidity is an issue and we’re unlikely to have more than, say, 20 per cent in the smaller markets in Southeast Asia, for example. We also don’t think it’s our job to be invested in frontier markets.”
One part of the process that has changed is the inclusion of companies that are doing buybacks as part of their payout process, Mr Jordan says. “If I pick a country where we haven’t been that active, such as South Korea, [the companies] have been encouraged by the government to make their balance sheets more efficient and to increase dividends and paybacks, so we have a slightly wider range of options than we would have done,” he explains.
Turning to recent changes in the portfolio, he points out: “Markets have been coming down, so it’s more a question of finding better opportunities elsewhere rather than selling because stocks have done particularly well.
“Everything seems to be really highly correlated, particularly in the past six months, so it often didn’t matter what sector or country [the companies] were in, they all went down together. We avoided consumer staples for a long time purely because they’re expensive.”
The key investor information document shows the fund is ranked level five out of seven on a risk-reward scale, while ongoing charges of 1.81 per cent apply to all the share classes.
Funds investing in Asia have had a tough time recently as markets have tumbled, and very few of the Asian income funds have delivered a positive return over the past year or longer.