Results analysis from Kepler Trust Intelligence

Schroder Asian Total Retn InvCo PLC

19 March 2024

 

Schroder Asian Total Return (ATR)

19/03/2024

Results analysis from Kepler Trust Intelligence

Schroder Asian Total Return (ATR) has released its financial results for the year ending 31/12/2023. Over the year, the trust saw its NAV increase by 8.8% on a total return basis, compared to the benchmark return of 1.3%. The AIC sector average delivered a total return of -0.5%. 

Performance over the year has been primarily driven by stock selection, with the managers extracting positive attribution from 10 of the 12 countries in the index. Firstly, the managers' decision to avoid many Chinese companies delivered good relative returns. Secondly, the decision to allocate to a number of technology stocks also delivered strong performance.

Stock selection in India was a small relative detractor, but still contributed significant absolute returns. This was offset with performance elsewhere, and furthered long-term cumulative returns.

The trust announced a 4.5% increase in the dividend to 11.5p which indicates a prospective yield of c. 2.5% based on the current share price (as at 13/03/2024). The dividend was supported by revenue reserves which remain significant.

The discount narrowed slightly over the year to 4.6%. The board have been very active with share buy backs. In total, over 7.5% of the initial share capital was bought back over the course of 2023. 

Gearing has ranged between 4.6% and 10.3%, with an average level for the year of 7.9%.

Chair Sarah MacAulay commented on the trust's strong performance in a challenging period by saying "our unconstrained approach to investing in Asia has not only delivered good returns but also provided a degree of capital protection in difficult market conditions"

Kepler View

Schroder Asian Total Return (ATR) is a unique offering in the AIC Asia Pacific sector. Managers Robin Parbrook and King Fuei Lee take a benchmark agnostic approach that allows their stock selection capabilities to generate alpha, as well as using hedging strategies to help dampen volatility.

We believe the 2023 results represent a return to form and Robin and King Fuei. Their best returns came from stock selection in China, including the decision to avoid the big e-commerce names. Conversely, the names they did hold performed well and delivered significant alpha.

Stock selection alpha has been prevalent throughout the portfolio including in weak markets. Their tech holdings also rose significantly following increased demand which has been a positive tailwind.

Despite the excellent performance, the shares have traded at a persistent discount albeit the level is considerably narrower than the average of the peer group. The board has been active in trying to mitigate this and as such, we believe the current discount represents an attractive entry point for long-term investors.

The managers believe that many companies in the region are in good shape, which not only offers them a good foundation from which to deliver growth, but it also supports the dividend outlook for the region.

The portfolio continues to have an underweight allocation to China, and is overweight more developed Asia Pacific countries. The managers have considerable experience to support their top-down overlay, which we believe can help mitigate the worst of the region's risks. As such, we believe ATR may appeal to investors who maintain a cautious outlook on China, but still wish to capture many of Asia's exciting growth trends.

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