Asia and emerging markets have been out of favour for some time, most noticeably since the market dip in the middle of 2013, leading some experts to warn dividends could be at risk. However, Williams and Chan say that not only are dividends stable in the region, they look set for strong growth over the long-term.
“There’s been a significant change over the last decade in Asia,” Williams said. “We see long-term growth in Asia and that being able to translate through into dividend streams.”
The managers highlight China, often viewed as the engine of growth in the region, as a leader in corporate dividend policies.
“Top businessmen [in China] feel they do need to reward shareholders,” he said.
The managers are very bullish about their expectations for GDP growth in the country, signalling a Chinese slowdown could be over-egged.
“We expect double-digit growth not just in China but throughout Asia,” Williams continued.
The pair also don’t expect a systemic 2008-style banking collapse in China, which many investors believe is a possibility.
Their view concurs with that of Devan Kaloo, Aberdeen’s head of emerging market equities, and fund managers from Hermes.
Williams and Chan admit the situation surrounding the Industrial and Commercial Bank of China (ICBC), which is under fire for its part in a troubled shadow-banking scheme, is “very important”, but they believe any shocks should be well contained.
The bank is refusing to help bail out investors in a high-risk investment scheme, a stance that Williams and Chan favour.
“We would like to see this be allowed to fail,” Williams said. “A high yield, as we found out in the UK with Icelandic banks, doesn’t mean you get a high return. It means there are inherent risks attached.”
“We’d like to see ICBC not stand behind it, but legally they may have to if they are forced to by the government.”
“Still, we don’t see immediate systemic risk. It is still possible for the government to sustain it. It’s unlikely you get a systemic crisis.”
The managers are overweight China as a result of their positive outlook on both economic growth and dividends. They favour financial and industrial stocks, with 23.65 per cent and 19.5 per cent in each sector respectively.
The tiny £18m fund also has the bulk of its assets, 60 per cent, invested in mid cap stocks.
“We find more focused revenue streams there,” said Chan.
Last year FE Trustnet tipped the fund as a good companion to core Asian income holdings such as the five crown-rated Newton Asian Income fund, due to its ability to invest further down the market cap spectrum.
The managers are also underweight Australia and overweight China, which is the opposite of FE Alpha Manager Jason Pidcock’s Newton Asian Income fund. This could help investors balance their exposure to the region.
Liontrust Asia Income is yielding 4.51 per cent, the fourth-highest figure in the sector, behind Schroder Asian Income Maximiser, Henderson Asian Dividend Income and Newton Asian Income.
Asian income funds as a whole have had a difficult time since the market correction in June last year, as highlighted by previous FE Trustnet research, and Liontrust Asia Income has been no different, losing 0.62 per cent over one year.
The fund protected against the downside better than its peers in the IMA Asia Pacific ex Japan sector, which lost 5.44 per cent, and the MSCI Asia Pacific ex Japan index, which lost 7.13 per cent.
The fund has made 11.87 per cent since launch in March 2012 while the sector and index picked up just 3.36 per cent and 2.82 per cent, respectively.
Performance of fund vs sector and index since launch
Source: FE Analytics
For investors looking for a bargain when the majority of equity markets in the world have risen dramatically, the cheap valuations in Asia could represent a buying opportunity over the long-term.
The Liontrust fund is one of the few in the Asia Pacific or emerging markets that does not have exposure to blue chip Taiwan Semiconductor Manufacturing. It prefers names such as luxury resort Wynn Macau, Chinese exterior auto part supplier Minth Group and Chinese investment holding company REXLot, which is the largest position in the fund.
Darius McDermott (pictured) says the fund is one on Chelsea Financial’s watch list, and points out its current asset allocation has fared better than its competitors in recent markets.
However, he still favours Newton Asian Income for its longer track record and sustained outperformance. “It’s one on the radar. Mark is an experienced Asia fund manager. It’s on our reserve list. It’s had a good start and performance has been good,” McDermott said.
He adds that the fund’s smaller size will also mean it can be more flexible than larger funds in the sector.
The fund requires a minimum investment of £1,000 and has ongoing charges of 2 per cent.
