Income and Growth Rating 2023: Invesco Asia Trust

Ian Hargreaves and Fiona Yang have a disciplined approach to running Invesco Asia (IAT). They aim to identify the growth opportunities the Asian market offers, but have a strong focus on valuations before deciding whether to invest. They have a contrarian approach, looking to buy those companies currently out of favour but capable of recovering, and are also willing to sell companies if they become consensus buys and the managers believe the share prices are reflecting too much optimism (see Portfolio).

The managers of IAT have an enhanced Dividend approach. The trust pays 2% of NAV every six months, offering investors an attractive income alongside the total return. This also allows the managers to focus on identifying the best value growth opportunities in the region without being beholden to the dividend yield.

Recently, the managers have looked through the noise surrounding China, held their nerve and been rewarded for it. They have closed the trust’s underweight over the past 18 months, despite the challenging headwinds the country has faced. Since the zero-Covid policy was lifted, China’s stock market has bounced and the trust has benefitted from this and is now ahead of the peer group and benchmark over a five-year period (see Performance). The managers believe the region also offers a more stable backdrop for investors, as a result of monetary and fiscal policies. They argue that inflationary pressures are less of a concern in Asia, suggesting greater policy flexibility, which should be supportive for markets. They believe this leaves the region well-supported to capture not only the benefits from the reopening of China in the short term, but also into the future, as the region benefits from developed markets catching up.

We believe IAT has a number of features which help it stand out against the AIC Asia Pacific sector peer group, most notably the valuation focus that the managers employ. Their disciplined, contrarian approach leads to a portfolio differentiated from most of the sector, offering investors something different to the growth focus offered elsewhere (see Portfolio). We believe IAT’s enhanced Dividend approach could increase the appeal to investors, for whom income is an important factor, for a region which, historically, has had a lower yield than that of developed markets.

The current positioning also offers differentiation. As a result of the valuation discipline, the managers have reduced exposure to a number of Indian holdings and are now underweight the country. Whilst the managers appreciate the country from a top-down perspective, they have remained disciplined in their valuation approach (see Performance). We believe this then offers an appealing opportunity to investors who are also nervous about the high valuations of the country or who are looking for diversification from other Asian funds.

The valuation approach has been beneficial to returns recently with strong relative performance against both the benchmark and peer group. The managers believe this has the opportunity to continue, with support from both regional changes, such as the reopening of China, and from ongoing structural growth in Asia. This belief has been reflected through the increased level of Gearing of the trust.