Results analysis from Kepler Trust Intelligence

Schroder Oriental Income Fund Ltd

24 May 2024

 

Schroder Oriental Income (SOI)

24/05/2024

Results analysis from Kepler Trust Intelligence

Schroder Oriental Income (SOI) has released its interim results for the period ending 29/02/2024. Over the period, the trust saw its NAV increase by 7.5% on a total return basis, which compares to a return of 1.9% for the MSCI AC Pacific ex Japan Index, the trust's formal benchmark. The AIC Asia Pacific Equity Income sector delivered a weighted average return of 5.8% over the same period.

The top performers in the period have been the region's technology firms. This has been driven by the industry's destocking trend and the increased proliferation of artificial intelligence. Richard's stock selection has led to an overweight which has been beneficial to performance.

Richard has an underweight allocation to China which has been a big contributor to performance following the country's challenges. However, the manager still generated positive alpha from China. Richard has an overweight to Hong Kong which was a drag on returns, though this was more than offset by strong stock selection leading to a positive overall return.

Two interim dividends were declared in the period. Earnings growth has been modest in the region, though Richard believes this could begin to pick up. He is confident that underlying income remains robust enough to maintain the trust's strong progressive dividend track record.

The discount widened during the period from 4.5% to 6.4%, though this has narrowed in the period post the interim statement.

The trust's chair, Paul Meader, reflected on the positive long-term outperformance of the trust stating: "Since inception, a shareholder has received a total return of 489.0%, whereas a passive investment in the Reference Index would have generated 288.5%"

Kepler View

We believe this interim statement is another demonstration of the benefits of active management in Asia, and a testament to Richard's stock selection approach. Whilst the region has been overshadowed by global equities, Richard has delivered significant outperformance, strong absolute returns and a diversified income source.

Performance has primarily been driven by stock selection. This has been particularly impressive in the China and Hong Kong allocations in our opinion. Richard is underweight China, which aided relative performance, yet the companies he did hold have outperformed. Meanwhile, he his overweight Hong Kong which was a drag on performance, yet this was more than offset by positive stock selection. We believe this should provide investors with confidence in Richard's ability to outperform over the long-term.

Richard highlights that aggregate valuations are back in line with long-term averages, though there is significant dispersion which lends itself well to his active approach. He notes that the region's prospects could be affected by changes in the interest rate cycle in developed markets. We would expect this to be beneficial company earnings, providing support for the income picture also.

SOI's dividend outlook remains strong, supported by the trust's large financials allocation. The trust has an impressive dividend growth track record and Richard believes the outlook supports this. We believe SOI continues to provide investors with a diversified income stream to traditional asset classes.

Despite the strong performance in the period, the discount widened in the period which Richard believes reflects the negative sentiment towards Asia which could arguably reverse. We believe the discount offers investors a potentially attractive entry point.

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