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Three-year track record: Jupiter Asian Income

21 October 2019

Juliet Schooling Latter, research director, FundCalibre, continues her column for Professional Paraplanner with analysis of the Jupiter Asian Income managed by Jason Pidcock.

Bounded on the east by the Pacific Ocean, on the south by the Indian Ocean, and on the north by the Arctic Ocean, Asia is a fascinating and diverse region. Consisting of 48 countries it has numerous climates, cultures, economics and government systems.

Asia is also home to almost 60%* of the world’s population. To put this into context, Europe is home to just under 10%*. There are also thousands of investment opportunities: 17,912 companies are listed in Asia – more than in the US, UK and Europe combined**.

However, while many investors think of Asia as a growth region – which it undoubtedly is – it is also a strong region when it comes to dividend income and, over the past decade, has experienced the world’s strongest dividend growth thanks to rising profits and expanding payout ratios.

A long-standing favourite manager of mine in this area is Jason Pidcock. Jason managed the Newton Asian Income fund (now BNY Mellon Asian Income) very successfully from 2005 to 2015, when he left to join Jupiter Asset Management. The following year, he launched Jupiter Asian Income.

Jupiter Asian Income aims to capitalise on the opportunities of today, as well as the potential of tomorrow, and its higher weighting in developed market holdings – notably Australia – as well as its income mandate, make it a relatively defensive Asia Pacific option.

Jason is well versed on the politics and economics of every country within his remit, and while the main driver behind an investment is the company fundamentals, Jason doesn’t believe you can invest without consideration to the macroeconomic backdrop, and therefore starts his process with a top-down analysis. He also considers long-term trends in the region, looking to identify those that will lead to certain sectors and stocks performing well – for example the expanding middle-classes.

Liquidity of stocks is a major factor when it comes to company selection and Jason takes a hard-line approach. He will only invest in companies above $2.5 billion in market cap and he makes sure that over 80% of the fund could be liquidated in just three days.

When it comes to income generation, Jason will hold a combination of stocks that yield more than the index, and up to 20% in lower-yielding companies that have the potential to grow their dividends. At the moment he has three such stocks: Ping An, Tencent and AIA.

The resulting portfolio is high conviction – consisting of around 30 companies with a sustainable competitive advantage in their sector and where there are high barriers to entry to deter new entrants. An initial position will be a minimum of 1% and stocks are allowed to run up to 7%. The business model of these businesses will also need to be scalable to allow for dividends to be paid to shareholders and the company’s management team should not only be able to fulfil the potential of the business, but they should also have a positive attitude towards minority shareholders.

Since launch in March 2016, the fund has returned 59.1%*** – ever so slightly less than the IA Asia Pacific ex Japan sector average of 60.96%***, but over the three years or so it has been the second least volatile fund in the sector^, so its risk-adjusted returns are very good. And in down markets Jason’s strategy still holds up well – last year the average fund in the sector was down 9.81%^^, while this fund fell just 4.24%^^.

With heightened volatility in stock markets likely to be a theme for some time, the defensive nature of this fund should make it more resilient to macroeconomic shocks. Long-term UK investors looking for exposure to the region’s enticing demographics, both now and into the future, may find the focus on dividend yield and dividend growth opportunities particularly attractive.

*Source: World Population Review, August 2019

**Source: World Federation of Exchanges, December 2018

***Source: FE Analytics, total returns in sterling, 2 March 2016 to 25 Sept 2019

^Source: FE Analytics, 25 September 2019

^^Source: FE Analytics, total returns in sterling, calendar year 2018

 Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Juliet’s views are her own and do not constitute financial advice.