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.
Mr Jordan’s fund is down 12 per cent in the year to March 2, while the Investment Association Asia Pacific ex Japan sector lost 8.5 per cent and the MSCI AC Asia Pacific ex Japan index is down 10.3 per cent. But the fund has fared better across five years, delivering 14.3 per cent, which just beat the peer group’s average return of 12.5 per cent and the index’s gain of 12.8 per cent.
The manager admits: “It’s been a tough couple of years for high-dividend yield investing. Not dramatically worse than the market but the possibility of higher rates has been a headwind, as has the continued outflows from the region as a whole.”
| VERDICT - Richard Philbin, chief investment officer, Harwood Multi-Manager |
| This is a concentrated portfolio containing around 40-50 holdings and currently yields a very attractive 5.5 per cent. Performance has been in line with the benchmark, although volatility is a little less, as is the fund’s beta. The top-10 holdings account for circa 35 per cent, with the largest holding at less than 5 per cent. Almost 60 per cent of the assets are in Hong Kong, China, Singapore and Australia. |
Mr Jordan notes financial holdings have been a drag on performance recently, particularly the banks. But some of the positions in Indonesia have been a positive for the fund’s performance, as have technology companies.
He says: “Some of [this performance] since July has come from technology stocks in Taiwan that suffered really badly in the first half of last year and are now back to the same levels. I think the key there is [making sure] you’re happy with the companies and you’re sure that the cashflow and dividend payouts and the balance sheets are okay.”
