Fund Profile

Schroder Oriental Income 16 January 2024

Disclaimer

This is a non-independent marketing communication commissioned by Schroder Investment Management. 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
SOI has delivered another year of outperformance and dividend growth…
Overview

The manager of Schroder Oriental Income (SOI), Richard Sennitt, looks to capture the improving dividend culture of the Asia Pacific region to create a portfolio that can provide an attractive and growing income, as well as deliver capital growth over the long term.

SOI has performed well in the past year primarily through good stock selection and supported by an underweight allocation to China. Stock selection has driven returns over the long term too, with the trust significantly ahead of the benchmark over five years. The market has fluctuated significantly in the past year due to macro-factors which have impacted the outlook for earnings and valuations (see Performance).

Despite this, portfolio activity has been limited in 2023. Richard has rotated within sectors rather than making broad changes. The macro-gyrations are having knock-on effects on dividend forecasts, which is having an influence on allocations, though the manager maintains a significant underweight to China, as well as an overweight to the financials and real estate sectors (see Portfolio).

The trust has delivered another year of Dividend growth in 2023. Income strategies in Asia have performed relatively well versus broad markets, and Richard believes there remain plenty of attractive income ideas at good valuations from a much wider and more diverse opportunity set in the region than in other geographies.

Despite the good performance, the trust’s Discount has widened to over one standard deviation wider than the five-year average. The board has been active in trying to limit the volatility of the discount by buying back c. 4% of the share count in the past 18 months.

Analyst's View

We believe Asian income is an overlooked asset class. Not only does it offer a diversified source of income compared to other geographies, but the region arguably offers structurally higher growth potential for both capital and income. Richard highlights that the market also has a larger percentage of higher-yielding companies than developed markets, as well as offering better fundamentals such as lower gearing and sustainable payout ratios. As such, we believe the asset class offers an attractive, resilient and growing Dividend profile.

We think SOI offers an attractive way of accessing this asset class due to the impressive long-term, stock-selection-driven track record that Richard has achieved (see Performance). This has returned significant alpha over many years, including the most recent, which we consider to be particularly impressive due to the challenges in the region.

We believe the current level of Discount, at over one standard deviation wider than the five-year average, could offer a compelling entry point for long-term investors. Changes in the interest rate narrative could see a weakening in the US dollar next year, which would be supportive for the region as a whole. We think this could lead to discounts narrowing. The board has been very active in share buybacks, which we believe should be an encouraging sign, as well as providing support to prevent it widening further.

Bull

  • Performance has been driven by good stock selection over many time periods
  • Trust has an impressive track record of dividend growth with ample reserves
  • Shares are trading at a wide discount to NAV

Bear

  • China has an outsized influence on the region’s outlook and faces a number of challenges
  • Trust levies a performance fee which may be off-putting to some investors
  • India is not in the trust’s benchmark
Continue to Portfolio
2024 Kepler Income & Growth Rated Fund

This trust has been awarded a rating by Kepler Trust Intelligence for income & growth... Find out more

Fund History

03 Jul 2024 Monthly roundup: merger news and highlights from our June small cap event
Jo and Ryan discuss the latest news, reviews and interviews in the investment trust world...
02 Jul 2024 Trust Issues: Investing in the Asian income story with SOI manager Richard Sennitt
In this episode of Trust Issues, we speak to Richard Sennitt, manager of Schroder Oriental Income, about the opportunity for investors in the Asian income sector which offers access to world-leading companies in the region...
07 Jun 2024 Monthly round-up of investment trust news - #1
Jo and Ryan discuss the latest news in the investment trust world...
23 May 2024 Results analysis: Schroder Oriental Income
SOI’s active management approach has yet again delivered strong outperformance…
26 Apr 2024 The best of both worlds
Why Asia offers investors both income and capital growth…
26 Apr 2024 Income options for your 2024 ISA
The compelling alternatives to cash in today’s market environment
14 Feb 2024 Rise of the Machines
We look at some potentially exciting technology themes outside of the AI realm and share ways for investors to gain exposure without the hefty price tag…
07 Feb 2024 Range anxiety
We look at what context we can gain from ten years of discount analysis…
17 Jan 2024 Top of the Pops
We reveal the winners of our investment trust ratings for 2024…
16 Jan 2024 Fund Analysis
SOI has delivered another year of outperformance and dividend growth…
15 Nov 2023 Why dividend investors should be looking at Asia
Companies in the region offer strong earnings growth and diversification potential...
15 Nov 2023 The Asian century
Failing to invest in Asia means omitting half the global economy from your portfolio…
13 Nov 2023 Results analysis: Schroder Oriental Income
SOI has reinforced its status as an excellent way to access the growing dividend culture in Asia…
21 Jul 2023 Investment trusts: Asia for income
Schroder Oriental Income Fund – a next generation dividend hero...
14 Jul 2023 Asian investment trusts: an abundance of opportunity
Exploring investors’ renewed enthusiasm for Asian equity...
02 Jun 2023 Investing for income in a world of inflation
The attractive alternatives to cash for UK income investors...
23 May 2023 Fund Analysis
SOI’s sector-leading performance is at odds with its unusually wide discount…
21 Apr 2023 Podcast: Trust Issues #14 - Investing for income in Asia
We speak to SOI Manager Richard Sennitt about finding the best dividend payers in the world's largest continent...
16 Dec 2022 Investment Trusts: opportunities in all market conditions
How are current market conditions impacting the Schroders investment trust range?
02 Nov 2022 Fund Analysis
SOI offers access to the long-term income growth story in Asia…
18 Jun 2020 Gimme shelter
As income investors brace for impact we ask which regions and trusts are less likely to cut their dividends in 2020…
31 Mar 2020 Fund Analysis
SOI offers access to the exciting dividend growth story in Asia…
19 Apr 2018 Fund Analysis
A diversified portfolio of Asian equities focused on yield generative companies with a quality bias...
19 Apr 2018 What now for Asia?
We examine battered Asian equities amid talk of a trade war between the US and China...
03 Oct 2016 Fund Analysis
A stockpicking investment trust with a strong track record in the Asia Pacific region, with the same manager at the reins for thirty years...
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