Fund Profile

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Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Asia Dragon. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
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Overview

Asia Dragon (DGN), formerly known as Edinburgh Dragon, aims to identify well-managed, world-class businesses in Asia and buy them when they are on attractive valuations. The management team at Aberdeen Standard Investments, headed by Adrian Lim and Pruksa Iamthongthong, take a long-term approach to investing. They aim to be an active, engaged shareholder, encouraging good corporate governance and alignment with other ESG goals.

The trust has performed strongly since implementing a number of changes to the process in 2017 and 2018, bringing to an end a period of underperformance. The essentials of the process remain the same: identifying companies with low leverage, sustainable earnings and strong competitive positions. Following a period of poor performance in 2015, the analyst team has been reorganised, a greater emphasis placed on examining the downside risks for stocks and the weighting to technology stocks and to China has been steadily increased.

The process is bottom-up, and so companies are picked on their own merits rather than to gain access to a theme, country or industry. Nevertheless, consumption growth, urban development and technology are areas the team find particularly exciting.

DGN is one of the largest Asia-focussed trusts with total assets of £627m. The management team is locally based, with the two managers based in Singapore, and contains over 50 investment professionals, some with extensive experience.

The trust has consistently traded on a double-digit discount in recent years, despite the recent recovery in performance. High-growth strategies have tended to be favoured by the market, while DGN has quality and value exposures which have been less in favour.

The trust has a total return objective, and so the board does not commit to maintain or grow the dividend. Although the payout has grown steadily in recent years thanks to growth in earnings, the board does not explicitly target a growing dividend and the yield is just 1.2%.

Analyst's View

DGN is an attractive core Asia holding, in our view. The quality characteristics of the portfolio should help to drive strong returns over the long run, and offer protection in any bad times. The portfolio is looking more balanced after the changes made in 2016 and 2017, with greater exposure to some growth areas. However, we are reassured that the compromise has not been on quality, but rather the team have become more comfortable with newer markets and companies and picked up exposure on relative share price weakness.

As one of the largest Asian investment trusts, with a highly experienced and well-resourced management team, we think Asia Dragon’s approach has the potential to generate steady long-term growth from a volatile region. While 2016 and 2017 saw frothy markets, the picture for Asia in 2020 is much cloudier. Trade wars, coronavirus scares and debt levels in China are all potential headwinds which make predicting the course of the markets difficult. A portfolio with low underlying leverage, made up of businesses with strong competitive positions which should grow irrespective of the cycle, is attractive given this outlook.

We think the discount of 10.6% is interesting as an entry point. With corporate action having made little change to the level of discount, we think good performance is likely to be needed for it to close. As such, if the team can continue to deliver on the strong performance shown in 2018 and 2019, we think it only a matter of time till the market wakes up and we see the discount narrow.

bull bear
The revamped strategy has led to a period of significant outperformance The discount has been stubbornly wide despite a fully subscribed tender offer
Deep resources and highly experienced management, with the lowest OCF in the peer group The yield is low
The quality approach should lead to outperformance in rocky markets Structural gearing can increase downside risks (while helping on the upside)
Continue to Portfolio

Fund History

06 Apr 2022 Fund Analysis
DGN offers core exposure to a fast-growing region…
25 Mar 2022 Slides and Audio: Asia Dragon
Download the presentation and listen to the audio from our 'Ideas for your ISA' virtual Spring event on 16 March...
23 Mar 2022 Fifteen ideas for your ISA
Slides and audio from our event last week, featuring fund managers running money in every major market in the world...
08 Dec 2021 We are the (ESG) champions
Investment trusts tend to be amongst the best-performing ESG strategies in the combined open- and closed-ended universe…
09 Sep 2021 Fund Analysis
DGN offers core exposure to high quality Asian companies and trades on a wide discount…
25 Aug 2021 Is the UK’s debt a ticking time bomb?
Our analyst argues Rishi is right to worry about government debt and borrowing…
31 Mar 2021 East End boys and West End girls
Our analysts debate whether the US or Asian stock markets will deliver the best returns over the next decade…
24 Feb 2021 Fund Analysis
DGN has returned to form with strong five-year performance despite extremely volatile markets…
08 Sep 2020 Fund Analysis
DGN’s focus on quality could prove attractive if the economic situation in Asia deteriorates…
26 Aug 2020 Trump v. Biden
Two of our analysts debate who will win the US election and what that means for markets…
05 Mar 2020 Don't panic: the case for investing in Asia this ISA season
We examine the relationship between stock market and GDP growth, before debating the case for an allocation to Asia...
13 Feb 2020 Fund Analysis
DGN has been performing strongly thanks to good stock-picking…
28 Aug 2019 Quality street: can the dominant style continue to outperform?
For several years, quality as an investing style has dominated, outperforming both value and growth. We examine why the case for quality remains strong and the importance of taking an active approach…
12 Aug 2019 Fund Analysis
This Asia focused trust remains on a far wider discount than its peers despite a marked improvement in performance...
10 Oct 2018 Information overload
Our analysis shows the long term case for emerging markets remains largely unaffected by much of the negative newsflow surrounding the sector...
01 Oct 2018 Fund Analysis
This Asia Pacific ex Japan trust has undergone a significant transformation in recent years, with exposure to technology and China reflecting a new tilt towards quality...
View all

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