Invesco Asia 02 July 2019
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 (IAT) invests in Asian companies in order to generate capital growth. The strategy is valuation sensitive and contrarian, but the process ensures a diversified portfolio which has managed to outperform in different types of market in recent years.
Over five years the trust has handsomely outperformed the index and its peers. NAV total returns have been 75.7% compared to 64.1% for the index and 64.4% for the Morningstar IT Asia Pacific ex Japan peer group and the share price returns have been even better: 80.1%. The trust has outperformed in two of the past three down markets as well as during the 2016 and 2017 sharp cyclical rally.
Stock selection has been key to the alpha generated, with positions in India and China particularly significant. Some positions have been held for many years and generated excess returns for shareholders: Samsung Electronics in Korea, Netease in China and UPL in India, for example.
Historically, the portfolio has tended to trade on a significant discount to NAV and peers, and the board struggled to shift it within their 10% maximum. However, it appears that the strong performance has finally led to a significant shift, with the discount below 10% for most of 2019, although still wider than the average of the peer group which it has outperformed. It is currently on a 9.7% discount.
A tender offer in 2018 saw some discount playing investors reduce their holdings, and the board has focused on broadening the shareholder base which we believe has helped the performance to affect the discount unlike in the past.
A revamped dividend policy may also have been significant: this year the board, under a new chairman, has committed to a progressive dividend policy, and has signalled the intention to use revenue and capital reserves to fulfil this if required. The trust has also implemented an interim dividend for the first time, although the yield of 2% is still relatively low. However, should the trust pay the same final dividend on top of the interim already paid, the yield would jump to 2.9% on the current price. We note that trusts with a higher yield in the Asia Pacific sectors tend to trade on tighter discounts.