Schroder AsiaPacific boosts dividend

The IC Top 100 Fund, which is run by Matthew Dobbs, plans to pay out 9.5p a share in respect of its financial year to 30 September 2018, up from 5.6p in its previous financial year. The trust's chairman, Nicholas Smith, said the increase was due to the trust’s policy of paying out most of what it receives in income, which went up by 77 per cent thanks to a £1.2m rise in underlying dividends and £6.1m as a result of an accounting change. The trust will now increase its allocation of management and finance costs to capital from 0 per cent to 75 per cent.

If the resolution proposed at the trust's annual general meeting to pay a final dividend is passed, shareholders on its register on 28 December 2018 will receive the payment on 31 January 2019. 

However, Mr Smith stressed that the sharp rise in the dividend payment was a one-off, and that future dividend increases “will be at a similar rate to previous years”.

Over the year to 30 September 2018, Schroder AsiaPacific's net asset value (NAV) rose 4.2 per cent and its share price rose 2.2 per cent, behind MSCI All Country Asia Pacific ex Japan index’s gain of 4.4 per cent. Mr Dobbs said this was mainly due to the trust’s exposure to India and Thailand, both of which were hit by currency issues.

Over the two-and-a-half months since the trust's year-end, meanwhile, markets have experienced considerable falls. This means that that over one year to 11 December the trust's NAV and share price are down 10 per cent and 9 per cent, respectively. This is in contrast to a  6 per cent fall for MSCI AC Asia Pacific ex Japan index, according to Winterflood Securities.

Analysts at Numis Securities comment: “The 11.9 per cent discount to NAV offers value," they said. "The discount is in line with most of the peers, but there have been no buybacks since October 2016. The trust's board has a flexible approach to managing the discount, considering both the level that the peer group trades at and prevailing market conditions, with a longer-term maximum discount target of 10 per cent.”

Mr Dobbs said in the trust's annual report that it had been a tough period for Asian equities generally, with returns largely dictated by currency fluctuations. At the end of 2017 sterling strength cancelled out market gains, while in 2018 sterling weakness had masked volatility and losses from stock markets.

Mr Dobbs said 2018 will also be remembered for the weakness in equity markets. “There was rapid deterioration in China-US relations, with initial assumptions that this represented a mere trade dispute giving way to realisation of much more fundamental differences," he added. "Rising US interest rates, a stronger dollar and tightening credit conditions also contributed to downbeat sentiment across the whole region, allied to signs of economic slowdown in developed markets outside the US, and fading momentum in global trade.”

Despite a difficult year, Mr Dobbs is sticking to his guns. The trust will retain a low allocation to mainland Chinese stocks, something that helped performance in its last financial year, and continue to back Hong Kong companies – particularly technology stocks. 

However, he has made some changes due to the imposition of trade sanctions between the US and China. “We have made a few changes to the portfolio's positioning based on pure tariff considerations, not least because we have never been keen on low-margin labour cost arbitrage business models which will be most disrupted by tariffs," said Mr Dobbs. "Our focus has, and will remain, upon value-added players in what are complex supply chains that are unlikely to be easily substitutable, particularly in the US where labour constraints and skills shortages are becoming increasingly apparent.”

Performance

Source: Winterflood as at 12 December 201

Top 10 holdings as at 31 October 2018 (%)

Source: Schroders

Geographic/Sector breakdown as at 31/12/2018 (%)

Source: Schroders