Best in Class: Schroder Asian Income
It may be hard to believe, but there was once a time when you could get an attractive yield of 4 per cent by taking little or no risk in your portfolio.
However, those halcyon days of being able to rely on risk-free assets like cash and government bonds for such an income are unlikely to return any time soon.
The best three-year fixed cash Isa only pays in the region of 1.7 per cent while the UK Gilt 2-year yield is in the region of 0.34 per cent.
So investors are having to be more creative in finding both a strong and consistent income return on their investments.
This week I wanted to touch on Asia as an alternative. It’s always been a growth-led market, but I was very interested to learn that around two-thirds of the long-run equity returns in the region have historically come from dividends.
Change is also happening to make dividends a greater part of the investing culture in the region.
Dividends in Asia
For example, the Shanghai Stock Exchange started encouraging companies to pay more than 30 per cent of profits as dividends in 2013; Korea introduced a penalty tax on excess capital holdings to promote higher dividends in 2014; and the Securities and Exchange Board of India began making dividend policies mandatory for the top 500 listed companies in 2016.
Over the past decade, dividends from Asia have also performed very strongly.
On an underlying basis, they have risen 124 per cent, despite a slowdown in 2019.
When you compare the region to a mature income market like the UK, the biggest attraction I believe is that potential for growth in dividend streams in Asia.
This week’s best in class is the Schroder Asian Income fund, which celebrates its 30th anniversary this month.
The fund has been managed by Richard Sennitt since 2001. Richard joined Schroder in 1993, initially as a member of the Japanese desk, but has been focusing on Asia Pacific equities since 1997.
The fund looks to yield between 3.5 per cent to 4 per cent per annum, over rolling three-year periods, given typical market conditions. The historic yield is currently an attractive 4.3 per cent.
As Asian markets tend to focus on short-term sentiment, they can be more volatile than fundamentals would normally dictate.
Therefore, stock selection is at the heart of the managers’ investment approach, with income and potential capital growth both taken into consideration.
The focus is on identifying companies that are able to grow shareholder value in the long term.