Investment trust swaps: Asia Pacific ex Japan
Emerging Asian trusts fair much better than their open-ended rivals over the long-term, but are overlooked by the majority of retail investors.
Many people believe the Retail Distribution Review (RDR) will increase the popularity of investment trusts and certain platforms have already started adding them to their buy-lists.
These vehicles have numerous advantages over their open-ended rivals, such as the ability to gear, and on average lower fees and lower turnover. All these bode well for long-term performance, and given the volatile nature of emerging markets, they bode even better for emerging Asian portfolios.
This, in part, is why many investment trusts in IT Asia Pacific ex Japan Equities have such a superior track record over funds in the IMA Asia Pacific ex Japan sector.
If you’re upbeat about the fortunes of the region, you might want to consider adding a trust with an emerging Asian focus to your portfolio – particularly given that many are currently on discounts, and some of the highest profile options in the open-ended universe are now soft-closed.
Aberdeen and First State are usually the first ports of call in this area, though Schroders have also emerged as a strong outfit in more recent years. The two stand-out performers in the total return stakes are the Aberdeen Asian Smaller Companies IT and Susie Rippingall’s Scottish Oriental Smaller Companies IT, which have delivered 880.3 and 627.78 per cent respectively over the last decade.
Performance of trusts, sector and index
Source: FE Analytics
They’re also among the top-three performers in the sector over one, three and five years, and in spite of their small-cap focus, are less volatile than both their peer group and the MSCI Asia ex Japan index.
The options are particularly interesting given the lack of equivalents in the open-ended universe. Only the Aberdeen Asian Smaller Companies fund has a specific small-cap focus, and this hasn’t come anywhere near challenging the performance of either trust.
The Aberdeen Asian Smaller Companies IT currently has significant overweights in Malaysia – the trust’s biggest regional position [21 per cent] – Thailand and India, but it has nothing invested directly in China, preferring instead to get indirect exposure from Hong Kong and Singapore. By contrast, the Scottish Oriental Smaller Companies IT has 15 per cent in China, and has far less in Malaysia, Thailand and India.
The Aberdeen portfolio is arguably better value, with an ongoing charge of 1.25 per cent, according to the AIC. While the Scottish Oriental Smaller Companies has a lower figure [1.01], it charges a performance fee, which has pushed the ongoing charge up to 2.28 per cent over the last year. Unlike Aberdeen Asian Smaller Companies, Rippingall's trust is currently trading on a discount though [2.2 per cent].
Both portfolios have five FE Crowns.
In the multi-cap space, Aberdeen dominate once again. The
Aberdeen New Dawn Investment Trust and
Edinburgh Dragon Trust fall short of only the two small-cap trusts over 10 years, and have significantly beaten their peers and benchmark in the shorter term. They're both on discounts of around 11 per cent according to data from the AIC.
In more recent years, the stand-out performer has been the
Aberdeen Asian Income trust. Since its launch in December 2005, it’s returned 165.72 per cent – more than 70 percentage points more than its benchmark.
Performance of fund versus sector and index since launch
Source: FE Analytics
Again, only Aberdeen Asian Smaller Companies and Scottish Oriental Smaller Companies have returned more. Aberdeen Asian Income has been significantly less volatile however, and with a yield of 3.28 per cent, it’s one of the few income-plays in the sector.
The trust has just a 6.6 per cent position in China, again preferring to get its exposure from Singapore. It has a 21 per cent position in Australia – typical of Asian income funds, which rely heavily on the market for their income.
It has a TER of 1.4 per cent, and is currently trading on a premium of 7.5 per cent. However, the trust's board has recently announced the convening of a general meeting to approve an issue of C Shares, which will give investors a window of opportunity to buy into the trust at a lower premium than that at which it is currently trading.
Also worthy of mention is the five-crown rated
Schroder Oriental Income trust, and the
Fidelity Asian Values trust, headed up by FE Alpha Manager John Lo.