Asian income funds have had a decent 2016, yet Asian stock markets still remain cheap compared to other global markets. Here we review the opportunities, for income and growth investors.
Year to date the average Asian stock market fund has grown 21.7%. This compares favourably to the FTSE World Index, which is up just 16.8%. But it is the income potential which particularly excites us.
Back in 2010 we suggested that one of the surprises by the end of this decade might be the extent to which UK pensioners relied on Asian stock markets to generate their income needs. In practice these Asian income funds have done rather well.
For example, Liontrust Asia Income fund is up 24.6% since January 2010, compared to 7.3% for the average UK equity income fund or 8.3% for UK growth.
But such funds are still not being bought in the scale they deserve.
For example, Asian shares remain 30% cheaper than those in developed Western markets, which is as if they are priced for a crisis. The reality is that there is greater stability in this region (less debt, better demographics, more politically stable than markets closer to home).
There are not a huge number of specialist Asian equity income funds. We reviewed the main funds
earlier in the year and below we have updated the table with their yields. Income growth has disappointed on occasion in the last couple of years, not helped by currency swings, but the factors to keep that income both flowing and growing remain in place, for example:
- Rising standards of living on the back of rising real wages
- Increasing domestic consumption
- Asia will have 10 times more middle class citizens than the US, and five times more than Europe, less than 20 years from now. That is an extraordinary global rebalancing!
These factors will drive company profits and dividends for decades to come.
As you can see in table 1 there are a range of attractive income yields. It also shows the growth for the year to date.
Yet the amount invested into these Asian income funds (£4,627m) is dwarfed by that invested into the very parochial UK equity income funds, which is 13x times greater. (17x times greater if the huge Invesco Perpetual funds were included).
Nowhere is without risk in the shorter term. But Asia is set fair to deliver handsomely for income investors in the decades ahead – and you can buy cheaply now.
ACTION FOR INVESTORS
- There are many opportunities available to income investors who look overseas...but also pitfalls.
- Thoughtful investors will capture extraordinary income benefits in the longer term...
- ...but the industry needs to improve fund offerings, and improve education on Asian opportunities
FURTHER READING
Table 1: Asian Equity Income funds (sorted on growth YTD)
|
Fund
|
Growth year-to-date (%)
|
Yield
|
|
Liontrust - Asia Income
|
24.57%
|
4.50%
|
|
L&G - Asian Income Trust
|
22.34%
|
4.10%
|
|
Jupiter - Asian Income
|
19.86%
|
3.90%
|
|
Schroder - Asian Income
|
19.20%
|
3.84%
|
|
Schroder - Asian Income Maximiser
|
17.41%
|
7.14%
|
|
Newton - Asian Income
|
17.39%
|
4.05%
|
|
Henderson - Asian Dividend Income
|
16.98%
|
5.90%
|
Notes:
Funds filtered by size (>50m sterling). Data as of 15/09/2016