The top Asia Pacific trusts for longer term investors

Exotic foreign holidays may be off the agenda, but the Asia Pacific region remains an attractive option for your portfolio.

Longer-term investors looking for respite from the pandemic might want to consider adding to their Asia Pacific exposure. The region offers some attractive valuations and benefits from lower debt levels and a better Covid response than in the West.

The core recommendation in this area from the analysts at Numis is the £903m Schroder AsiaPacific Fund (LON:SDP) that is currently trading on a wider than normal 14% discount to NAV and yielding just over two percent.

It is run by Matthew Dobbs, a highly experienced manager, who focuses on quality companies with strong balance sheets, healthy cash flows and good corporate governance that can be purchased at attractive valuations.

Attractive entry point

According to Numis, the fund has performed well this year with a NAV total return of 11.2% versus 8.1% for the MSCI AC Asia ex Japan benchmark, although the share price has not kept pace due to a widening of the discount, which they believe provides an attractive entry point.

SDP has benefited from an overweight exposure to the Chinese internet companies Alibaba and Tencent, as well as Taiwan Semiconductor. The manager has recently increased his allocation to companies with substantial exposure to growth within the region, but listed elsewhere, with examples including BHP Billiton and Rio Tinto, both of which benefit from solid cash generation even at relatively depressed commodity prices.

Dobbs expects to see significant market movements over the coming months as the recovery from Covid is likely to be erratic, but says that the crisis is driving a number of long-term disruptive structural trends in the region. As in the West these include e-commerce, flexible working patterns, digital payments, the use of social media, online procurement and services, as well as the automation of manufacturing and logistics.

Look beyond the challenges of 2020

The analysts at Winterflood recommend the £626m Asia Dragon Trust (LON:DGN), which is available on a wider than normal 15% discount and paying a yield of around one percent. In an update at the end of April the managers said that the next few earnings quarters were likely to be tough, but it is important to look beyond 2020.

At the end of June the fund’s largest weighting was China at 40%, yet it was also the biggest underweight relative to the index as the manager is wary of local valuations and concerned about the political tension with the US.

Asia Dragon outperformed its benchmark in 2018 and 2019, but has found it tougher going in 2020. Despite this, Winterflood likes the fact that it targets companies with solid balance sheets that should prove more resilient in the current environment.  

Healthy yield

Their other recommendation in the region is the £387m JPMorgan Asia Growth & Income (LON:JAGI), which is trading on a much tighter discount of two percent due to its strong track record. The fund pays a quarterly dividend equivalent to one percent of NAV giving it a yield of four percent per annum.

At an update in mid-May the manager said that valuations across the region were attractive, particularly in price-to-book terms and the expected returns over the next five years had increased. His largest country overweight relative to the index was Korea where valuations were thought to be ‘very cheap’.

Winterflood says that the fund has a good performance record since the change in management arrangements in 2015 and that it has outperformed its index and Asian Income peers over three and five years. It benefits from JPMorgan’s considerable resources in the area and has a flexible mandate that allows it to take advantage of opportunities wherever they arise.