Asian equity investors have had a rocky ride in recent times, including those in funds with an income focus. The latest Janus Henderson Global Dividend Index, which covers the third quarter of this year, reported that the rate of dividend growth appeared to be slowing internationally and that payouts in China look under threat following recent trade war developments. Almost half of the Chinese companies tracked by the Janus Henderson Global Dividend Index reduced their dividends in the third quarter.
Good yield
Strong returns
Flexible approach
Potential share price uplift
Volatile region
“The slowdown in the Chinese economy is affecting the dividend-paying capacity of its companies, particularly in the short term, because dividends are more closely tied to profits in China than in other parts of the world,” said the report.
This could have a knock-on effect on Asian equity income funds. But it is still important to diversify your income sources and Asia continues to grow, so rather than avoid Asian equity income, be selective about which fund you use to access it.
One fund that has stood out both in terms of income and overall returns is JPMorgan Asian Investment Trust (JAI), which has delivered a share price total return of 40.7 per cent over the three years to the end of October. Over one and three years, it is ahead of the average returns of both open and closed-ended Asian funds – as well as MSCI AC Asia ex Japan index.
The trust has a yield of more than 4 per cent and a flexible strategy that may stand it in good stead if the trade war rumbles on. In a recent note, Emma Bird, analyst at broker Winterflood, argued that the trust’s combination of strong returns and high income reflected its ability to invest in companies across the region regardless of their dividend policy. Its direct rivals in the investment trust space have an investable universe that is “far more limited”.
The trust has an unusual dividend policy but, so far, it has worked. JPMorgan Asian Investment Trust pays dividends equivalent to 1 per cent of its net asset value on the last business day of each quarter. The trust also converts some of its capital into income. Winterflood analysts say that this approach is controversial, but has led to a partial rerating of the share price in recent years. And they argue that JPMorgan Asian Investment Trust's share price could improve further. While other Asian equity income trusts have traded on “persistent premium ratings” to the value of their underlying assets, this trust trades on a discount of around 5 per cent. Continued outperformance could trigger a bump in the share price.
There is still a risk that wary investor sentiment could prevent JPMorgan Asian Investment Trust’s strong returns from being reflected in its share price – as has been the case with some other outperforming closed-ended funds. This trust is also not immune to the difficulties that China and the wider Asian equity market face. It had 38.1 per cent of assets invested in China at the end of October, putting it slightly ahead of MSCI AC Asia ex Japan index's weighting to this market. And investing in Asia for growth and income is likely to involve volatility for the time being.
However, Winterflood says that stock selection is expected to be a “key driver of relative returns” rather than decisions on countries or sectors. The trust’s largest sector exposure at the end of October was financials, which accounted for 31 per cent of its assets, and it had 18.8 per cent in information technology companies.
If you have a long-term investment horizon and high risk appetite, JPMorgan Asian Investment Trust still offers a reliable and potentially underpriced way to get a good income. Buy. DB
JPMorgan Asian Investment Trust (JAI)
| Price | 377.4p | NAV | £374.7m | ||
| AIC Sector | Asia Pacific Income | Price discount to NAV | 5.33% | ||
| Fund type | Investment trust | Yield | 3.10% | ||
| Market cap | £354.7m | Ongoing charge | 0.75% | ||
| No of holdings | 55 | Net gearing | 1% | ||
| Set-up date | 12-Sep-97 | More details | https://am.jpmorgan.com/ | ||
| Manager start date | Richard Titherington 19/10/2015, Ayaz Ebrahim 20/05/2016, Robert Lloyd 01/08/2018 | ||||
Source: Morningstar, as at 26 November 2019
Performance
| Fund/benchmark | 1-year total return (%) | 3-year cumulative total return (%) | 5-year cumulative total return (%) | 10-year cumulative total return (%) |
| JPMorgan Asian Investment Trust share price | 21.47 | 40.72 | 90.3 | 153.05 |
| AIC Asia Pacific Income sector average share price | 19.63 | 29.59 | 61.96 | 165.35 |
| MSCI AC Asia ex Japan index | 11.82 | 20.38 | 55.97 | 129.24 |
Source: FE Analytics, as at 31 October 2019
Top 10 holdings (%)
| Taiwan Semiconductor | 8.4 |
| Samsung Electronics | 7.3 |
| Tencent | 6.8 |
| Alibaba | 5.7 |
| AIA | 4.8 |
| HDFC Bank | 4.0 |
| Ping An Insurance | 3.4 |
| China Construction Bank | 2.8 |
| PICC | 2.5 |
| WuXi | 2.2 |
Source: JPMorgan, as at 31 October
Geographic breakdown (%)
| China | 38.1 |
| Korea | 17.2 |
| Taiwan | 12.1 |
| Hong Kong | 11.7 |
| India | 10.9 |
| Indonesia | 4.1 |
| Singapore | 3.1 |
| Vietnam | 2.0 |
| Thailand | 1.6 |
| Cash | -0.8 |
Source: JPMorgan, as at 31 October
