Invesco Asia 21 August 2024

The long-term performance of Invesco Asia (IAT) has been very strong, driven by managers Ian Hargreaves and Fiona Yang’s contrarian investment approach. This leads them to identifying companies that are out of favour, meaning they are available at attractive valuations, though still exhibit quality factors such as robust balance sheets and good cash generation. The trust was awarded Kepler’s Income and Growth rating in 2024.

This approach has led the managers to take an overweight allocation to China which they believe is trading at attractive valuations. They have recently rotated their positioning away from consumer discretionary names in the country to consumer staples in order to capture the good valuations on offer. Conversely, Ian and Fiona have been underweight India and have taken some profits from a number of stocks that have performed well (see Portfolio). Good stock selection has helped offset the impact of the momentum in the Indian market in the past year, and has been a driver of the long-term outperformance.

The trust has an enhanced Dividend policy that uses a combination of the underlying income and a contribution from capital to pay out c. 4% per annum in two semi-annual payments. This approach means the trust can offer investors an attractive income without a yield requirement for the managers, enabling them to focus on the best ideas on a total return basis.

IAT continues to trade at a Discount to NAV. The current level is approximately one standard deviation wider than the five-year average, albeit from quite a narrow range. However, the board has begun to undertake share buy-backs having previously held off. Around 1.7% of the shares have been bought back in the first half of 2024.

IAT’s contrarian approach means investors are likely to get a differentiated portfolio to what is available elsewhere in the peer group or the benchmark, in our opinion (see Portfolio). The current positioning, as a result of Ian and Fiona’s valuation discipline, includes an underweight allocation to India, and overweight to China. We believe this offers a contrast to a number of other Asia-focussed trusts especially those with a growth focus. Whilst this provided a small headwind over the past year, the managers’ contrarian approach has proved successful over the longer term and therefore could offer investors style diversification in a portfolio, as well as a differentiated source of alpha (see Performance).

We believe the trust is further differentiated as an investment proposition by the enhanced Dividend policy, meaning investors can continue to receive an attractive income from the trust without compromising on the capital growth potential that the Asian region offers.

This opportunity looks particularly attractive at this juncture due to the wide Discount the shares are currently trading at. Not only is the current level around one standard deviation wider than the trust’s own five-year average, but the board has begun buying back shares having previously chosen not to, as it believed the discount was a result of broader macro factors. We believe this change in sentiment can be taken as a vote of confidence in the trust’s current portfolio and its valuation.