Invesco Asia 09 March 2022
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by Invesco Asia. 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.
Invesco Asia Trust (IAT) is managed with a flexible, valuation sensitive approach which has proven invaluable during the macroeconomic volatility of the past two years. Manager Ian Hargreaves uses valuation signals to enter and exit positions rather than trying to anticipate trends in sentiment or the economy, and this has led to a successful series of trades into and out of rallying stocks and sectors in 2020 and 2021, in turn leading to two consecutive years of outperformance in very different environments. As we discuss under the Performance section, this has contributed to a good long-term track record of outperforming the benchmark.
Ian characterizes his style as a ‘growth at a reasonable price’ strategy. In recent years, many of his most successful stock picks have been in growth areas such as technology and ecommerce, where he was able to find opportunities to invest in under-appreciated companies that stood to benefit from strong structural trends. Typically the portfolio is balanced across sectors and countries, with a current tilt towards value, given this is where Ian has found valuations to be more attractive, after the recent sell-off in growth stocks, but he is finding ideas in various countries and sectors (see the Portfolio section).
IAT pays a dividend of 2% of NAV each half year, with contributions made from capital and the portfolio managed for total return.
In January 2022, Fiona Yang was appointed co-manager alongside Ian. Fiona is a native mandarin speaker who has been working on the portfolio for about four years and contributing to greater coverage of onshore China stocks, in particular.
IAT’s Discount has been trending narrower over the past two years; at the time of writing it is 9% compared to an 11% five-year average.
The last two years have really shown off the advantages of Ian’s valuation-driven approach. Market direction and leadership has rapidly changed, based on non-economic factors such as vaccines and variants which would have been impossible to reliably anticipate. By following the valuation discipline closely, Ian had trimmed his exposure to ecommerce and China before the reflationary rally was underway and rotated into more cyclical areas. More recently he has been building back exposure to China after its sell-off, aided by Fiona’s input. We think this valuation-sensitive approach is likely to appeal to many investors in the current environment, as they look to diversify their exposure to the dominant growth stocks and funds which have done so well in recent years.
IAT should appeal to those seeking growth or income, thanks to the enhanced dividend policy which sees it pay an annualised yield of 4%. Crucially, Ian is able to invest without worrying about covering this dividend with natural income, allowing him to buy exciting companies with no or low dividends, such as Ming Yan Smart Energy, a wind turbine manufacturer and current key overweight with a de minimis yield. Investors do give up some certainty over future distributions, given the dividend level depends on the growth or decline in NAV.
- Dividend policy offers attractive yield while maintaining total return focus
- Flexible approach with more valuation-sensitivity than a growth dominated peer group
- Strong long-term track record
- Dividend is not predictable as it depends on NAV
- Asia as a whole does not look cheap
- Rising US interest rates could be a headwind to emerging Asia