Invesco Asia Trust (IAT) is managed by Ian Hargreaves, who aims to generate double-digit returns over a three- to five-year period by investing in good-quality businesses which are worth more than the market believes. Generally, returns are expected to come from capital growth, but a secular shift to paying higher dividends in the region means that the yield on IAT’s portfolio has risen to 2.8% (the shares currently yield 2.2%). Ian expects dividend growth to be a medium-term trend in the region, while IAT’s board is committed to growing the dividend, and has the ability to pay out of capital.
The trust has generated returns close to target since Ian took over in March 2011, with annualised NAV total returns of 9.4%, despite the market trending sideways over the past two years. IAT has tended to perform well in both rising and falling markets, helped by the strategy of balancing risk exposures (see the Portfolio section). Overall, the trust has outperformed its peer group by an impressive 16% over five years, with Ian beating the benchmark in both good times and bad. In fact, he has outperformed in seven calendar years out of the last nine.
Ian observes that the valuation gap between IAT’s portfolio and the index (MSCI AC Asia ex Japan) has widened in recent months as he has found a number of cheap opportunities after a weak period for Asian markets. These valuation opportunities and Ian’s optimism for the region in 2020 explain why the gearing has reached new highs, as we discuss in the Gearing section.
Despite the strong long-term performance record, the discount stands at 9%, wider than the AIC Asia Pacific sector average of 7.5%.