The appeal of Asia to yield-starved investors can be seen with London-based Newton Investment Management reporting over $1 billion in inflows into its Asian income fund to date this year.
The firm, one of BNY Mellon's 16 boutique asset managers, had £47.5 billion ($75 billion) in assets under management as at June 30 this year.
Of this, more than £25 billion is institutional, with the rest from retail, private clients and charities. It manages about £5.4 billion in Asian ex-Japan equities across the house.
As a firm Newton is orientated towards equity income investing, with 16% of all its assets in income strategies.
It launched its Asian income fund in 2005 and the strategy now has $1.8 billion. To date this year it has reported over £700 million in inflows from Latin America, Europe and a bit from Asia.
The fund has returned 9.09% this year to end-June, 6.21% over one-year and 24.3% over five years. Its benchmark is the FTSE AW Asia-Pacific ex-Japan index.
It adopts a stock-picking approach with a 1-3 year investment horizon, and the portfolio consists of about 60 stocks. Its top five holdings were Hutchison Port Holdings, Taiwan Semiconductor, Link Reit, Transurban Group and Advanced Info Service.
The portfolio’s highest weighting is to Hong Kong/China and Australia, in line with the index. However, fund manager Caroline Keen says the firm is cautious on China, noting that in the first quarter of this year 2.5 times more companies missed earnings consensus than met them.
Where the income fund differs from its benchmark is in its Singapore weighting which is 11.93% (5.25% for the index) and 7.15% for Thailand (2.08%). And it is sharply more underweight on South Korean stocks at 1.93% (15.88% for the index).
Keen says Newton is happy to buy and hold and has not sold one share in the income fund year-to-date. Asked if it was still a tough sell to UK institutions, she replies: “No, people like the concept and understand it. We have seen the strongest inflows this year because of people’s real demand for income.”
She stresses that the percentage of Asia-Pacific ex-Japan stocks yielding above 3% in the FTSE All World Index had risen from 16.3% in 1995 to 28.6% in 2011. For Japan it had risen from 0.1% to 9% over the period.
But the same period has seen declines in +3% dividend stocks in the UK, sinking from 20.1% in 1995 to 7.3% last year; and North America, which fell from 29% to 17.5%.
She says the portfolio has a low beta of 0.8, but concedes the strategy tends to underperform when stocks rally. “There was a liquidity-fuelled rally in January and we got left behind to some extent,” she says. “But we made this up and ended the first quarter ahead of benchmark.”