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Diversify your income with Guinness Asian Equity Income

Guinness Asian Equity Income offers exposure to Asian income and growth
Diversify your income with Guinness Asian Equity Income

Retirees and investors who draw a regular income from their investments often focus on UK equity income. But if too much of your income comes from a small number of holdings, you could be at risk of a fall in your income if one of them fails to pay dividends.

IC TIP: Buy at 1080p
Tip style
Income
Risk rating
High
Timescale
Long Term
Bull points

Strong total returns

Attractive yield

Diversified holdings

Asian growth

Bear points

Potential volatility

Investing in equity income funds outside the UK can help to mitigate this risk. Asian equity funds are a particularly good solution because this region’s predominantly young population is getting richer, and economies that used to be dominated by commodities and export manufacturing are diversifying. Also, increasing numbers of Asian companies now pay dividends and have the resources to support wider growth.

A good way to tap into this is Guinness Asian Equity Income Fund (IE00BDHSRF15), which has an attractive yield of nearly 4 per cent. The fund has been managed by Edmund Harriss and Mark Hammonds since 2013, and has around half of its assets in financials and IT companies. But its largest holding is China Lilang, a fashion retailer. The fund also invests in Singapore and Australia.

Mr Harriss and Mr Hammond screen for companies that fulfil three criteria. They must consistently generate capital growth that is above the cost of capital, be able to sustainably grow their dividends rather than just have a high dividend yield, and have a proven track record of weathering different economic environments over time.

The fund typically invests in around 30 to 40 companies and each holding contributes meaningfully to the fund’s performance. Its managers also have a one-in, one-out policy, so “any new ideas have to be better than existing ones”, explains Darius McDermott, managing director of research company FundCalibre. “It also means there is no tail of stocks with less conviction.”

The fund typically retains each holding for three to five years, which reduces trading costs. This approach seems to be working well because in most years the fund has consistently outperformed its benchmark. The fund has beaten MSCI AC Asia Pacific ex Japan index and the Investment Association (IA) Asia Pacific ex Japan sector average over one, three and five years.

However, the fund can be volatile because it invests in emerging market companies. Mr McDermott also believes a slowdown in China could be a risk to the fund’s investments.  

But despite its bouts of volatility, the fund has always bounced back. For example, although it fell 10.76 per cent last year, so far this year it is up 14.82 per cent – ahead of MSCI AC Asia Pacific ex Japan index and its sector average.

Mr McDermott also says that China is more likely to experience a slow landing rather than a full-blown recession, because China's economy has been slowing for a few years as it tries to transform itself from an export-led economy into a more consumer-led economy. And, in any case, the fund does not have all of its assets in China, so is not wholly reliant on the fortunes of this one economy.

So if you have a long time horizon and can withstand bouts of volatility, Guinness Asian Equity Income Fund still looks like a good way to diversify your sources of income. Buy. ZB

 

Guinness Asian Equity Income (IE00BDHSRF15)

PRICE:1,080pMEAN RETURN:18.03%
IA SECTOR:Asia Pacific Excluding JapanSHARPE RATIO:1.20
FUND TYPE:Open-ended investment companySTANDARD DEVIATION:13.56%
FUND SIZE:$178.59mONGOING CHARGE:0.99%
No OF HOLDINGS:36*YIELD:3.88%
SET-UP DATE:19 December 2013*MORE DETAILS:guinnessfunds.com
MANAGER START DATE:19 December 2013  

Source: Morningstar & *Guinness Asset Management

 

Performance

Fund/benchmark1-year total return (%)3-year cumulative total return (%)5-year cumulative total return (%)
Guinness Asian Equity Income7.2162.2996.9
MSCI AC Asia Pacific ex Japan index4.159.6571.13
IA Asia Pacific ex Japan sector average2.7955.2968.07

Source: FE Analytics, as at 30 April 2019

 

Top 10 holdings (%)

China Lilang3.4
Elite Material3.1
China Merchants Bank3
Novatek Microelectronics3.00
Qualcomm2.90
Corporate Travel Management2.90
Ascendas Real Estate Trust2.9
JB Hi-fi2.9
Link REIT2.8
Li & Fung2.8

Source: Guinness Asset Management, as at 31 March 2019

 

Geographic breakdown (%)

China27.1
Taiwan22.0
Hong Kong11.10
Australia8.50
Singapore8.30
US5.70
Thailand5.40
South Korea5.00
UK2.70
Malaysia2.50
Cash1.70

Source: Guinness Asset Management, as at 31 March 2019