Income Rating 2026: Invesco Asia Dragon

IAD’s contrarian approach has led to strong performance over multiple time periods…by Ryan Lightfoot-Aminoff

Invesco Asia Dragon (IAD) has delivered sector beating Performance over both the short and long term, aided by managers Fiona Yang and Ian Hargreaves’ contrarian approach, which has generated alpha in a variety of market conditions. Asian equity markets have broadly performed well in the past year on the back of a weakening US dollar, a recovery in China, as well as other country-specific factors, which Fiona and Ian were well positioned for, leading to good alpha generation in a rising market.

Even after this good performance, the managers remain contrarian and are beginning to pivot the portfolio away from some of the names that drove performance, such as technology and financial firms, and are rotating into areas they deem better value on a stock-specific basis. Due to the approach, the Portfolio has often looked and performed differently from many comparators, and these changes continue to drive a potential diversion. In light of wider market valuations rising above long-term averages, the managers have reduced Gearing to zero in order to mitigate risk. That said, the portfolio remains at a notable discount to the market.

Elsewhere, IAD pays an enhanced Dividend of c. 4% of NAV in four quarterly instalments. This changed from a semi-annual payment following the completion of the combination with the former Asia Dragon (DGN) trust in early 2025. As a result of this combination, assets have increased substantially, which has not only improved liquidity of the trust’s shares but also contributed to IAD having some of the lowest Charges in the peer group.

Analyst’s View

Asian equities have undergone a strong near-term period, defying the challenges faced by the region in the past year. This has contributed to some strong returns for IAD (seePerformance), with Fiona and Ian delivering outperformance during the rally, thanks to their contrarian approach, which we think is well placed to capture turning points in markets.

Whilst such strong performance is welcome, it has naturally increased the managers’ cautiousness, leading them to rotate the Portfolio, taking profits from their better performers and deploying elsewhere, whilst also mitigating the overall exposure of the trust through a reduction in the Gearing. We believe this means the trust could appeal to more circumspect investors, who appreciate the long-term qualities of the Asian region, but are cognisant of the strong run-up there has been over the past year.

On a longer-term view, we believe the managers’ contrarian mindset continues to make the trust stand out. This approach has often given the trust differentiated positioning to comparators, such as the overweight to China and underweight to India in 2024, which has led to the latest period of strong outperformance and, as such, can continue to provide investors a differentiated option in the region, especially when considering the high proportion of strategies with a quality growth focus.

This is further apparent when considering the Dividend picture. Whilst IAD is not alone in paying an enhanced income, the underlying fundamentals, such as above-market yield and free cash flow, mean the trust has a different profile to several other income trusts, as well as the growth-focussed mandates we believe are a fairer comparison. As such, the trust could appeal to both income and growth investors in our view, and provide a potentially compelling choice for either.

Bull