Results analysis from Kepler Trust Intelligence

Schroder Oriental Income Fund Ltd

24 October 2024

 

Schroder Oriental Income (SOI)

24/10/2024

Results analysis from Kepler Trust Intelligence

Schroder Oriental Income (SOI) has released its final results for the year ending 31/08/2024. Over the period, the trust saw its NAV increase by 18.2% on a total return basis, which is over twice the return of 8.6% for the trust's formal benchmark. The AIC Asia Pacific Equity Income sector delivered a weighted average return of 12.9% over the same period.

The trust benefitted from an improvement in market backdrop as the Federal Reserve began to cut interest rates, leading to improved investor confidence which has supported Asian markets.

The strong absolute and relative performance has also been driven by the trust's tech stocks which have benefitted from the AI theme. The trust's financials exposure also supported performance.

By contrast, China struggled though the manager's underweight allocation proved beneficial. Post-results, China has seen a market recovery which the overweight to Hong Kong benefitted from.

Dividends totalled 12p per share, equating to a historic yield of 4.4% and marking 19 consecutive years of growth. The dividend was slightly above earnings meaning reserves were utilised.

The trust's discount widened year on year. The board undertook significant share buybacks in the year, which have continued in the post-results period.

Gearing remains unchanged, with the multi-currency facility was renewed for another year.

The trust's outgoing chair, Paul Meader discussed how Asia has benefitted Richard's stock selection approach, saying "The region remains fertile territory for a disciplined stock picker [and] remains as relevant for investors today as it did at inception."

Kepler View

Schroder Oriental Income's (SOI) full year results describe another year of impressive performance. Manager Richard Sennitt has presided over a strong period, including returning more than double the benchmark. This has again been largely driven by stock selection.

Richard's overweight to tech stocks has provided positive attribution, despite the sector not often featuring in income portfolios. Furthermore, the underweight in China has supported relative performance. Despite this, Richard has managed to generate positive stock selection from China and Hong Kong which is an overweight allocation. We believe this demonstrates the potential for long-term outperformance and reinforces the trust's differentiated income stream.

In his outlook, Richard acknowledges that China weighs heavily on the market. The country remains challenged, however, a range of stimulus measures announced after the results have buoyed sentiment, albeit with volatility. Richard added to some China holdings, albeit remains underweight, instead holding an overweight to Hong Kong to balance risks.

The board also declared an increased final dividend, marking the 19th consecutive year of growth. We believe the use of reserves shows the board's commitment to maintaining the dividend growth track record. The trust continues to have sizeable reserves, supporting the dividend outlook, in our opinion.

The discount widened in the year and post results, despite improved optimism. We believe this could prove an attractive entry point for long-term investors. The board has been active with share buybacks which have been accretive to NAV, but are also arguably a vote of confidence in the trust.

CLICK HERE TO READ THE FULL REPORT 

Visit Kepler Trust Intelligence for more high quality independent investment trust research.

Important information

This report has been issued by Kepler Partners LLP.  The analyst who has prepared this report is aware that Kepler Partners LLP has a relationship with the company covered in this report and/or a conflict of interest which may impair the objectivity of the research.

Past performance is not a reliable indicator of future results. The value of investments can fall as well as rise and you may get back less than you invested when you decide to sell your investments. It is strongly recommended that if you are a private investor independent financial advice should be taken before making any investment or financial decision.

Kepler Partners is not authorised to make recommendations to retail clients. This report has been issued by Kepler Partners LLP, is based on factual information only, is solely for information purposes only and any views contained in it must not be construed as investment or tax advice or a recommendation to buy, sell or take any action in relation to any investment.

The information provided on this website is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject Kepler Partners LLP to any registration requirement within such jurisdiction or country. In particular, this website is exclusively for non-US Persons. Persons who access this information are required to inform themselves and to comply with any such restrictions.

The information contained in this website is not intended to constitute, and should not be construed as, investment advice. No representation or warranty, express or implied, is given by any person as to the accuracy or completeness of the information and no responsibility or liability is accepted for the accuracy or sufficiency of any of the information, for any errors, omissions or misstatements, negligent or otherwise. Any views and opinions, whilst given in good faith, are subject to change without notice.

This is not an official confirmation of terms and is not a recommendation, offer or solicitation to buy or sell or take any action in relation to any investment mentioned herein. Any prices or quotations contained herein are indicative only.  

Kepler Partners LLP (including its partners, employees and representatives) or a connected person may have positions in or options on the securities detailed in this report, and may buy, sell or offer to purchase or sell such securities from time to time, but will at all times be subject to restrictions imposed by the firm's internal rules. A copy of the firm's Conflict of Interest policy is available on request.

PLEASE SEE ALSO OUR TERMS AND CONDITIONS

Kepler Partners LLP is authorised and regulated by the Financial Conduct Authority (FRN 480590), registered in England and Wales at 70 Conduit Street, London W1S 2GF with registered number OC334771.

 

END