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.
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