Fund Profile

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
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Overview

Schroder Oriental Income (LON:SOI) owns a relatively concentrated portfolio of equities from the Asia Pacific region, the strategy being to generate an attractive, growing yield as part of a total return strategy. The manager, Richard Sennitt, argues that the size of the Asian region is not matched by the level of research applied by investors. This means that there are market inefficiencies which he can exploit with a bottom-up, fundamentally-driven approach, aided by the considerable resources he has at his disposal at Schroders. Richard looks for firms with superior or improving return on capital invested, leading to a preference for quality companies at attractive valuations. These are compiled using an income lens, looking for the prospect of rising dividends over time (see Portfolio).

Richard notes that the opportunities to generate income from his portfolio have improved recently. Corporate profits have begun to recover from the impact of the Covid pandemic, which has fed through to dividends. Despite this, aggregate payout ratios in the region are relatively low and remain comfortably within the historical range, which provides confidence in their sustainability (see Dividend).

The recent market rotation to value has been beneficial for the relative Performance of the trust. On top of this, good stock selection has driven outperformance of the benchmark over both the long and short-term. This is despite the headwind of an underweight to China, which is partly as a result of the trust’s income mandate leading to an omittance of the large Chinese internet platforms. Despite the strong performance against both its benchmark and peer group, SOI has slipped to a wide Discount, relative to its own history and the peer group.

Analyst's View

We think that SOI is an attractive way to access the compelling opportunity of the growing dividend culture in Asia, alongside the economic potential, through Richard’s natural income growth approach (see Portfolio). The trust has one of the best track records in the sector since inception, and has performed well since Richard took over as lead manager in December 2020.

We think the Performance over the past 12 months has been particularly impressive, with stock selection offsetting the headwinds of structural underweights because of the income focus. Richard has highlighted that Asia is further ahead in the hiking cycle than developed economies and that lower debt profiles have put corporates in much better shape as a result. This has been supportive to corporate profits in the region, which has, in turn, led to an improvement in the Dividend outlook for the trust. As the reopening trade continues, it may continue to offer support to the trust, in both dividends and capital returns.

Despite this, the trust has fallen to a Discount below its long-term average. We note the trust has traded at a premium on multiple occasions in the past five years and also has typically traded at a narrower discount than its sector average, which is no longer the case. For both reasons, we think the current rating could be an opportunity and, in our view, if sentiment changes towards the sector, this anomaly could change quickly.

Bull

  • Strong long-term performance boosted by current tailwinds
  • Well-resourced team able to identify opportunities
  • Trading at a wider discount versus history and relative to peer group

Bear

  • Underweight to China could lead to relative performance issues if that market performs well
  • Gearing has been increased recently which can amplify losses, as well as gains
  • Large-cap, quality focus offers limited diversification to peer group
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

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...
View all

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