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Schroder Oriental focussing on income and quality


Schroder Oriental Income [LON:SOI], can be found in the Association of Investment Company (AIC) Asia Pacific Equity Income sector, which comprises five funds. The GBP735m fund was launched in July 2005 and aims to provide a total return for investors primarily through investments in equities and equity-related investments, of companies which are based in, or which derive a significant proportion of their revenues from, the Asia Pacific region and which offer attractive yields.

Managed by London-based asset manager Schroder Investment Management, which has been in the fund management game since 1805 and has around GBP750bn of assets under management, the fund is run by Richard Sennitt, who joined Schroders as an Asian equity investment manager in 1993. The Schroder Oriental Income fund is the best performing in sector over one-year to 27th May (on a share price total return basis), returning +11.7% against a sector average of +9.5%.

The rewards justify the risks

Although the fund doesn’t aim to beat the benchmark index, which it considers a reference, instead it seeks total return and income.  Since inception the trust has typically outperformed the MSCI All Country Pacific excluding Japan Index by a clear margin, particularly over longer time periods.  It has significantly outpaced the FTSE 100 Index, handsomely rewarding investors for the higher risk they assume when investing in Asian markets.

Sennitt has been managing the fund since inception.  He follows a bottom-up stock-picking approach, seeking to invest in large- to mid-cap dividend-paying stocks across seven emerging market countries and four developed market countries in the Pacific region. The countries the fund covers include: China, Indonesia, Korea, Malaysia, the Philippines, Taiwan and Thailand, as well as Australia, Hong Kong, New Zealand and Singapore; an investment universe that constitutes 1,156 stocks, covering around 85% of the free float-adjusted market capitalisation in each country.

Income and quality the bywords at Schroder Oriental

Income and quality are the watchwords for Sennitt and his team, who look for corporates that are already paying an attractive level of income – as well as the income-payers of tomorrow. The fund has an excellent track record of paying dividends, and is among the AIC’s ‘Next Generation of Dividend Heroes’, namely funds that have increased their dividend for more than ten-years in a row, but less than 20-years. Schroder Oriental Income has a track record of 17 straight years of increasing its dividend – bear in mind it’s not yet reached its 19th anniversary.

In the fund’s half-year report for the six-months to the end February, published earlier this month, the FTSE-250 listed investment trust delivered a total return of +489% since launch, whereas a passive investment in the MSCI All Country Pacific ex-Japan index would have generated +288.5%.

The fund reported a 7.5% NAV/share return over six months, beating the benchmark index by 5.6 percentage points – share price total return was +5.6%. Over longer periods Sennitt was ahead (on a NAV basis) by 23.6 percentage points over three-years and the company proposed two interim dividends totalling 7.8p/share, an improvement from 7.6p/share the year previously.

On a comparative basis the Schroder Oriental Income fund was one of the top performers in its sector. Over five-years the fund returned +36.6% (on a share price total return basis) against a sector average of +27.8%, second placed in sector and over ten-years returned +130.4% against a sector average +104.3%, securing third spot in its AIC sector.

Schroder Oriental Income top five holdings as at 30th April 2024

Investment Weighting Sector Country
Taiwan Semiconductor Manufacturing 10.3% Semiconductor Manufacturing Taiwan
Samsung   9.4% Consumer Electronics South Korea
Oversea-Chinese Banking Corp (OCBC) 3.4% Financial Services Singapore
Bank of China (BoC) Hong Kong Holdings 3.2% Financial Services Hong Kong
Singapore Telecommunications 2.7% Telecommunications Singapore

Source: Schroders

Ryan Lightfoot-Aminoff, an investment trust research analyst for Kepler said: “[Sennitt] continues to have an underweight allocation to China. This has been a big contributor to performance following the country’s ongoing challenges which have contributed to the region underperforming global equities. However, the manager still generated positive alpha from his stock selection in China. To balance the risk of being underweight [in] the region’s largest economy, [Sennitt] has an overweight to Hong Kong. This allocation was a drag on returns, though this was more than offset by strong stock selection leading to a positive overall return.”

Lightfoot-Aminoff noted that the fund’s outperformance has been primarily a result of the manager’s stock selection, which: “has been particularly impressive in the China and Hong Kong allocations […where the fund is] underweight China due to [Sennitt’s] caution over the economic outlook, which aided relative performance, yet the companies [the fund] did hold have outperformed.”

With a strong dividend history and a track record of outperformance, Schroder Oriental Income fund is an excellent window on the opportunity that Asia’s growing economy still provides.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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