Although Henderson TR Pacific is not focused on generating a steady income its investment style has led it more recently to better yielding stocks which are more cash generative, and at present the trust has a dividend yield of around three per cent, in part due to the fact that its share price has fallen. Over 2008 its share price contracted 37.4 per cent from 161.3p to 101p, according to Henderson data.
As of February 2009 the dividend yield for MSCI AC Asia Pacific ex-Japan companies was around 5.2 per cent, according to data from Henderson, but Andrew Beal, fund manager of the Henderson TR Pacific Investment Trust, expects this to fall to around four per cent.
Dividend yield - MSCI AC Asia Pac ex-Japan
Source: Henderson Global Investors
This is despite the fact that pay out ratios on Asian stocks are still low relative to earnings, and other investors think this region has more potential for income in future. For example, Raj Shant, head of European equities at BNY Mellon Asset Management, predicts that over the longer term more Asian income funds will be launched as dividends improve in this region.
Meanwhile Bruce Stout, manager of the Murray International Trust argues that Asia is one of the best areas for income as companies in this region are now focused on growing dividends – some stocks offer yields of five to six per cent with dividend growth.
But in 2009 Asian company earnings have been predicted to fall 20 per cent and Beal said that it could be as high as 40 per cent - last year analysts got their estimates for 2008 massively wrong. The consensus estimate for Asian companies was a 15 per cent rise in earnings over 2008 when in actual fact they fell 22 per cent.
Beal expects a fall in earnings of around 30 per cent in 2009.
Historical earnings decline
Source: Henderson Global Investors, FactSet, IBES, MSCI, Goldman Sachs
Nevertheless Beal hopes to maintain Henderson TR Pacific’s 2.4p a share dividend in 2009 as the trust typically invests in companies with a regular cash flow and under leveraged balance sheets. But as it is a growth trust and a dividend increase is not a requirement, Beal said he is happy to invest in companies which cut their dividends in times of difficulty if the cash saved is spent wisely.
Non Japan Asian companies which are good for dividends include those in the telecoms sector. Although Henderson TR Pacific has a high exposure to this sector - 12.7 per cent as of the end of February - its second largest sector exposure, it holds more growth orientated telecoms stocks, for example in India.
The downside to being more growth orientated is that at present the trust is struggling against its peer group in performance terms. Over 2008 the trust’s net asset value (NAV) fell 38.7 per cent from 183.5p to 112.5p a share, according to Henderson, while Asia ex Japan investment trusts' average NAV fell -37.5 per cent.
Beal said Henderson TR Pacific's NAV falls are also due to the trust’s gearing, so that was reduced to 8.5 per cent by the end of 2008, compared to 14.8 per cent at the end of 2007. However the plan is to increase this again to between 10 and 15 per cent by the end of 2009 to take advantage of weak share prices in Asia which offer opportunities to buy good companies at close to trough valuations.
Beal hopes that the trust will be fully invested by autumn, and says it is now too late to make the portfolio more defensive. But he is not doing this immediately as he wishes to be certain it is the right strategy following the losses high gearing incurred in 2008.
If the trust does increase its debt it will do this gradually over the year.