Newton offers income and growth

For many, investing often boils down to a straight choice between yield and growth. But it doesn't have to be. Many Asian companies are still growing fast, but also increasing their dividend payouts at a fair pace. So it's not surprising that the Asian income sector has seen several new fund launches, like the Schroder Asian Income Maximiser and the Invesco Perpertual Asian Equity Income Fund.

Both are attractive propositions from well established asset managers, but new launches are unknown territory. It is usually better to go for a fund with a track record of at least three years - preferably even longer - to see if the manager has the skill to deliver in both bear and bull markets. One fund in the sector that's been around long enough to prove its credentials is Newton Asian Income.

Launched in November 2005, it's one of the few open-ended, income-focused funds investing in the Asia Pacific ex-Japan region with a track record of more than five years. True, there are a number of Asian income investment trusts that have also been around for some time, but most of these trade at a premium to net asset value (NAV). There aren't many bargains to be had.

In addition, the Newton fund boasts a sound investment strategy, an attractive yield, and has an experienced manager in Jason Pidcock, who has spent his entire career of close to 20 years investing in Asia Pacific non-Japanese equities.

Mr Pidcock believes Asia is one of the most attractive regions for achieving a good balance between income and capital growth. "Some countries [in the region] offer very high dividend yields yet have relatively low growth, whereas others have low yields, but the growth rate we expect is higher," he says. "This offers plenty of fertile ground for picking a portfolio of stocks without having to compromise growth for yield."

That balance has fed through to performance. Since the launch of the Newton Asian Income Fund, roughly half of the return has come from capital appreciation and half from income.

Over both one and three years the fund is the top performer in the IMA Asia Pacific ex-Japan sector of around 60 funds, posting consistent top-quartile performance. At over five per cent, its yield is also one of the highest in the sector, second only to the Schroder Asian Income Maximiser Fund, which was launched last year.

Mr Pidcock follows Newton's thematic investment process, although the fund's focus on yield means he has to unearth some of his own ideas. He will only consider a stock if its prospective yield is 35 per cent higher than that of the FTSE All world Asia-Pacific ex Japan Index. A stock is sold if its yield falls 15 per cent below that of the index, in keeping with the yield discipline seen across Newton's other income targeting funds.

Mr Pidock is sanguine about the potential effects of high inflation upon Asian company growth rates and dividend levels. He points out that Asian companies are relatively well-placed to cope with this, thanks to strong balance sheets and robust cash-flow growth. Furthermore, he says that the discipline that comes with choosing higher-yielding stocks with more defensive characteristics means the income investor has an added advantage in an inflationary environment. Buy.

■ Look out for next week's Big Theme article which will take an in-depth look at the income story in Asia and the funds tapping into this.

Key fund data:

Source: Newton Asset Management & *Morningstar

Notes: Performance figures as at 20 June 2011

Top 10 holdings as at April 2011

Geographical Allocation