Stands out amongst its peers: Schroder Oriental Income

SOI’s traditional equity income approach helps it stand out amongst peers…by Ryan Lightfoot-Aminoff

 

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

Overview

Richard Sennitt, manager of Schroder Oriental Income (SOI), looks to utilise the full global resources of Schroders to construct a relatively concentrated portfolio of predominantly large-cap Asian equities, designed to generate an attractive and growing income over the long term. Richard seeks out quality companies that are generating good free-cash flow and are trading at attractive valuations, akin to what investors may consider a traditional equity income approach. This helps differentiate the trust from the peer group that has increasingly leant on more novel approaches to balancing income and capital growth (see Portfolio).

The manager builds the portfolio predominantly from the bottom-up, meaning he has the flexibility to allocate to or away from certain countries depending on where he sees the opportunities. Richard continues to have an underweight to China, whilst having a notable overweight to Singapore, primarily due to a bias towards the financials industry.

Both the overweight to financials and good stock selection have contributed positively to Performance in the past year, although this was offset by the underweight to China that rallied on the back of stimulus measures. Despite this, the trust has delivered strong, long-term outperformance of its benchmark, primarily driven by stock selection, whilst also offering a better income profile than the index.

This can be seen in the current yield of c. 4.3%, versus the index of 2.9%. Meanwhile, the Dividend has been increased for 18 consecutive years, with ample reserves in place to help support this if necessary. The trust was awarded Kepler’s Income Rating for 2025.

Despite the strong long-term track record, the trust continues to trade at a Discount to NAV. Whilst this is currently in line with the five-year average, the trust has traded at a small premium to NAV prior to this, demonstrating appetite for the strategy in more positive market backdrops.

Kepler View

The changing landscape of the Asia equity income investment trust sector means that SOI now stands alone as a pure play income strategy. Whilst several peers have adopted approaches such as enhanced dividend policies, Richard continues to build his equity income Portfolio in a more traditional manner, giving the trust a unique profile and offering investors a compelling option as part of a broader portfolio to generate a high, natural income whilst still offering the potential for growth that is inherent in Asia.

The current positioning could offer investors differentiation too, in our opinion. Richard has had a long-standing underweight to China, and whilst this has narrowed in the past year, following some selective additions to high-quality companies, it is a still a key feature of the portfolio and may appeal to investors who also have concerns over the structural issues the country is facing, whilst still wanting to gain exposure to the attractive growth characteristics of the Asian region. Furthermore, the valuation discipline that an income objective requires is also an attractive feature, making SOI an option for a long-term core holding in our opinion, and further helping to differentiate it from growth-focussed approaches.

In addition, the trust continues to trade at a notable Discount to NAV, which we believe not only adds to the upside potential should sentiment towards Asia pick up, but also increases the entry yield for investors, which currently stands at c. 4.3%.

Bull

• Strong long-term track record over multiple backdrops and time periods
• Natural income approach means style profile offers differentiation to peers and index
• Trust is trading at a discount to NAV

Bear

• Underweight allocation to China could continue to be a headwind should the country rally further
• Region potentially heavily exposed to tariff regime
• Trust levies a performance fee, which may be off-putting to some investors

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.