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Fund Profile

Schroder Oriental Income 02 November 2022

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 (SOI) aims to capture the full growth potential in Asian markets from both a capital and income perspective. The trust offers a natural income from businesses listed in the Asia Pacific region, with high earnings growth and rising payout ratios translating into rising dividends, as well as rising share prices. The historical yield is 4.5%, with the trust having delivered dividend growth each year since launch in 2005. As we discuss under Dividend, a further increase this year looks highly likely given the strong earnings growth already evident in the portfolio.

Asian markets offer an attractively diversified set of dividend opportunities, with technology hardware featuring highly in SOI’s portfolio, something which would not be usual in a UK equity income fund. This is balanced with traditional income sectors such as financials and materials – with the Australian diversified miners falling in SOI’s universe. This combination has helped deliver attractive returns since the reflationary rally (see Performance).

SOI is managed by the very experienced Richard Sennitt. Richard has over 28 years’ investment experience, and has also managed the open-ended Schroder Asian Income Fund since 2006. At the end of 2020 he took over from Matthew Dobbs as manager of SOI, but the process remains the same. It is still supported by Schroders’ large analyst team based in Asia and remains centred around their in-depth fundamental research (see Management).

SOI hasn’t recovered the premium rating it largely held pre-Covid despite strong recent performance, and it trades on a 4.8% discount. However, we note that SOI did very briefly trade above par after the reflationary rally.

Analyst's View

We think SOI is an attractive way for investors to earn a high and growing dividend. The Asian focus brings capital growth potential that the UK and Europe may not be able to provide, while also bringing geographical diversification and sectoral diversification – notably through the high exposure to dividend-paying technology companies. While Richard also runs an open-ended fund to the same strategy, the ability of the investment trust to build up reserves has allowed it to grow its dividend when underlying revenues have fallen, giving it a notable advantage. Additionally, the trust’s modest but persistent gearing levels allow for greater long-term growth.

In recent years many trusts have offered an income paid from capital, but SOI’s strategy is to focus on a natural income. This has resulted in a consistently growing dividend with more stable long-term returns, which we think may appeal to many income investors.

At the time of writing, fears of a global recession haunt markets. It is certainly true that the outlook is cloudy. However, Richard points out that Asian countries are generally in a much stronger position than they were in past crises, with better current account balances and less dollar-denominated debt. Additionally, SOI has a number of defensive features, such as its focus on companies with strong balance sheets and resilient earnings. Furthermore, the current discount of 6.6% offers some compensation for the risks, with SOI having a history of trading on a premium when risk appetite is higher. The board also uses buybacks when it sees fit to support the rating and NAV-per-share return.

Bull

  • Schroders has deep resources in Asia, and the trust has a track record of stock-picking success
  • Strong track record of dividend increases every year since launch and good level of reserves
  • Offers good diversification to the typical UK equity income sector and style exposure

Bear

  • Asian markets can be volatile
  • Immediate outlook for region (and global equities) is troubled
  • Has the potential to be expensive on an OCF basis if performance fee is triggered
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

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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