Demand for income, and the widening search to find it, has helped drive a surge in new vehicles targeting income in the Asia Pacific region, be it through one of the eight IMA-listed funds or the three investment trusts focusing on the area.
Interestingly, in spite of some tricky economic conditions, all of the 10 vehicles with a three-year track record have outperformed the MSCI Asia Pacific index return for the three years to September 4 2014, according to FE Analytics.
Data shows that while the index delivered a return of 28.16 per cent in the period, the lowest return from the Asian income-focused vehicles was still an impressive 30.84 per cent from the New Capital Asia Pacific Equity Income fund, run by manager Tony Jordan.
When compared across a 12-month period, the New Capital fund tops the list of both open- and closed-ended vehicles with a return of 14.57 per cent, while the MSCI Asia Pacific index delivered a less impressive 9.21 per cent return.
The one-year performance of these funds is a bit patchier than in the medium and long term, perhaps reflecting some of the issues regarding weakening currencies and expensive valuations in places such as Australia.
Of the 11 vehicles with at least a one-year track record and listed in the IMA and AIC Asia Pacific sectors with ‘income’ in the title, two underperformed the MSCI Asia Pacific index return, while a further three posted returns of less than 10 per cent for the year.
In terms of outlook, however, the prospects appear somewhat brighter, according to income managers.
Ben Lofthouse, manager of the Henderson International Income Trust, notes that with Europe and other traditional income regions under pressure, there are increasing opportunities in Asia and, in particular, China.
He explains: “The government in China is currently undertaking an enormous economic rebalancing in an attempt to produce more sustainable growth and improve the corporate culture.
“Aware of the lessons of its neighbours, the change was prompted by China’s reliance on export and state investment. Putting the brakes on the economy, however, has spooked investors up to now, who are worried about a ‘hard-landing’ in GDP growth.
“Two recent changes underpin the investment case. First, new economic data is instilling some confidence. Second, the government is starting to stimulate specific areas of the economy to encourage more focused growth, such as in social housing and in small- and medium-sized enterprises. With improving data and a more accommodative government, a number of opportunity sets arise.”
Mr Jordan adds: “We are looking for stronger growth and higher interest rates going into 2015, but Asia usually does well in this environment.
“Given the recent rise, I suspect it will be more about individual stocks rather than countries until such time that investors become comfortable that reforms in China will lead to more sustained growth. As always, a sustained rerating for the region depends on China.”
Nyree Stewart is features editor at Investment Adviser
