The fund is the second best-performer in the IMA Asia Pacific ex Japan sector over three and five years – behind only a smaller companies fund run by emerging markets specialist Aberdeen.
Jason Pidcock’s fund is also providing a healthy yield of 4.37 per cent, another reason for its popularity, although the returns it has provided make it attractive from a growth perspective too.
With so many investors looking to the fund to diversify and support their income, it is an appropriate time to ask why it has been so successful.
Since launch in November 2005 the fund has returned 187.86 per cent, well ahead of the 125.06 per cent from the FTSE World Asia Pacific ex Japan benchmark and 120.7 per cent from the IMA Asia Pacific ex Japan sector.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
However, the fund has not always been so successful. Our data shows that it underperformed the sector and benchmark for the first five years of its history and its benchmark for the first four.
Performance of fund vs sector and benchmark over 4yrs
Source: FE Analytics
One of the reasons for this is the more defensive, income-generative nature of the portfolio: the manager buys companies in lower-growth areas that should in theory be less sensitive to markets moving up – as they did from 2005 to 2007 – and down – as they did in 2008 and again in early 2011, when the fund started to forge ahead.
Between July and September 2011, the IMA Asia Pacific ex Japan sector lost 24 per cent while Newton Asian Income lost only 12 per cent.
This is key to why the fund currently sits on top of the performance tables.
In 2008 the fund also lost much less than its benchmark, while underperforming in the boom year of 2007 and the rebound of 2009.
Over the course of the last seven years the fund has displayed an annual volatility of 17.65 per cent compared with 20.8 per cent from the sector and 21.37 per cent from the benchmark.
The fund may have also been more protected than many of its peers because of its high weighting to Australia.
The country has a more established dividend-paying culture than other parts of Asia, making it important to income funds.
Newton Asian Income has one of the highest weightings to the country of any fund in the IMA universe, at 29.53 per cent of the fund.
The S&P ASX 200 index did relatively well in 2011, losing 9.86 per cent while the regional benchmark lost 12.93 per cent.
Being exposed to a single country to such an extent brings its risks, of course, and although the Australian economy has done relatively well out of the crisis, poor demand for commodities may be starting to take its toll on an economy so focused on mining.
Only this week Anglo-Australian giant BHP Billiton warned that iron ore demand from China would slow significantly as growth in the country dipped to 6 per cent, an awkward fact for the company which is increasing its production of the mineral thanks to the completion of new production lines planned during the boom years.
A surprise rise in unemployment in the country was also announced this week, underlining the fact that Australia is not immune to economic problems.
Newton Asian Income does not focus on the mining sector in the country, although BHP Billiton is a holding, and the manager believes the country is more than just a proxy for China. Nonetheless a poor period for the country could hit the fund.
Data from Style Research shows that the fund also tends to buy undervalued stocks; these also did better in 2011, when the growth stocks on the MSCI Asia Pacific ex Japan index lost 17.89 per cent.
Rob Gleeson, head of research at FE, rates the fund very highly, but he says that investors should be aware that the fund has a tough yield requirement that it cannot breach, which cuts down the investable universe of stocks.
However, he notes that it has not hindered the fund so far and our analysis suggests it may have helped it by pushing it into value and defensive stocks.
Gleeson adds that investors should also be aware that the fund does tend to focus on those countries where the dividend culture is particularly small, meaning it does not cover the whole region as other funds do.
"For example, Korea doesn’t have a dividend culture, so they have almost nothing in the country, as it is shaped around the dividend requirement," he said.
The other key feature of how the fund is governed is the thematic approach Newton uses across its range of products, Gleeson explains.
"Newton have identified 15 themes that they think are affecting the world and global trends. Within these themes they try to identify stable stocks across every fund."
"They also put a yield discipline in so they have already filtered out the companies that have not met the yield requirement."
"The risk is that the fund ends up being quite concentrated. However, having said that, they are not finding problems at the moment."
Gleeson also warns that not all of these themes are relevant to the region. Newton’s 15 themes include the growth in green energy consumption, which is not a strong trend in Asia.
Another of Newton’s themes is the growing importance of China to the world economy; however, the health of this country is in dispute and its stock market has done poorly over recent years.
Some industry professionals have queried the reliability of economic figures coming out of the country, while recently warnings have been sounded about the huge amount of debt building up in the nation.
Some experts even say the country could face its own credit bust.
The research team also says that an economic slowdown in China would greatly hurt its peripheral trading partners, and the fund is more exposed to companies reliant on China than local companies selling to the rest of the world.
Gleeson says that it's important to diversify the strategies on the active funds you use to avoid exposure to just one approach, although he notes there are relatively few options in the Asian income space.
For investors looking to diversify the risks associated with Newton Asian Income’s strategy, the closed-ended Aberdeen Asian Income fund could be a useful pick.
The five crown-rated fund has been building up a position in Japan, encouraged by the yields on offer there, and is currently yielding 3 per cent, according to the AIC.
It also has much less exposure to Australia – 21.7 per cent to Australia and New Zealand together – and avoids China, with only 16.2 per cent in China and Hong Kong together. It has ongoing charges of 1.38 per cent.
Jason Pidcock also runs the £666m Newton Oriental fund, which was one of the better performers in the sector when the Newton Asian Income fund lagged.
The fund has a growth remit, but invests in many of the cyclical sectors such as miners and commodity producers that Newton Asian Income avoids.
Newton Oriental is available with a minimum initial investment of £1,000 and has ongoing charges of 1.66 per cent.
Newton Asian Income has ongoing charges of 1.65 per cent and requires a minimum initial investment of £1,000.