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Liontrust puts Asia in the driving seat

Liontrust Asset Management – Asia Income Fund

Type: Unit trust

Aim: Income and growth by investing in equities in Asia Pacific excluding Japan

Minimum investment: Lump sum £1,000

Investment split: 10% in Asia Pacific equities excluding Japan

Isa eligible: Yes

Charges: Initial 5%, annual 1.5%

Commission: Initial 3%, renewal 0.5%

Tel: 020 7412 1700

Liontrust’s Asia income fund is its first fund for former Occam Asset Management head of Asia equities Mark Williams. Liontrust acquired Occam’s fund management business last October.

The new fund will target a yield of around 10 per cent above Asia Pacific ex Japan markets by investing in 50 to 70 stocks. Liontrust will identify what is driving Asian equities to determine which types of firms are likely to benefit, particularly those that look likely to provide higher than average yields over the next six to 12 months.

Putting the fund in to its market context Hargreaves Lansdown Richard Troue says: “In the past, investors traditionally looked to developed markets for dividends while associating emerging markets with rapid growth. Now, many emerging market companies pay increasingly higher dividends.” As an example, Troue points out that Asia is home to a quarter of the world’s stocks yielding more than 3 per cent.

“The Liontrust Asia income fund is managed by the experienced trio of Mark Williams, Carolyn Chan and Shashank Savla. They aim to identify key themes driving growth in the region and the companies set to benefit,” says Troue. He adds that there will be a bias towards companies offering a higher than average yield relative to peers in the region, but the Liontrust team believes the sustainability of dividends is key. This means strong cash flow will be a characteristic they look for when selecting stocks. “They cite telecoms companies as an example of cash generative businesses as customers pay regular bills. They favour Taiwanese operator Far EasTone which is seeing rising sales and income, and China Mobile which has over 650 million subscribers,” says Troue.

The impact the European sovereign debt crisis could have on Asian companies is another theme that the Liontrust team will explore. “As indebted Western consumers cut spending, demand for the exports of Asian companies could fall. However, Asian governments, companies and consumers are generally in rude financial health and have the ability to spend. Governments are pushing ahead with large infrastructure projects requiring huge amounts of natural resources; companies are continuing to upgrade IT software and hardware; and domestic consumers crave discretionary and luxury items such as watches and jewellery.” says Troue.

He notes that the Liontrust team thinks companies that could benefit from these trends include Taiwan’s largest cement producer, Taiwan Cement, Samsung Electronics and Emperor Watch, a retailer of prestigious watches.

“At a country level the managers prefer countries in a strong financial position with the flexibility to reduce interest rates to boost growth if necessary. They cite China, Indonesia and the Philippines as examples. They are less positive on India where it is currently harder to find quality high yielding stocks. The managers also have the flexibility to invest in Australasian companies should they identify attractive opportunities there,” says Troue

This is a concentrated portfolio of between 50 and 70 stocks, an approach Troue likes as it means each can contribute significantly to performance. “For income-seeking investors comfortable with the additional risks associated with emerging markets exposure I believe exposure to Asia could add a useful element of diversification to a portfolio,” he says.

Turning to the potential drawbacks of the fund Troue says: “The management team has plenty of experience but I would like to see how they fare working together on this fund before considering it further.”

Troue considers which funds are most likely to provide competition for Liontrust. “One of my favourite funds in this area is Newton Asian income, managed by Jason Pidcock. He is building a successful track record using Newton’s trademark thematic process to identify themes set to drive long-term growth, and companies set to benefit. He wants stocks that will generate an income, but he will invest in companies with lower yields, but where he expects strong dividend growth,” says Troue. He adds that current themes in the Newton fund include global realignment, which refers to a change in the balance of economic power from the West to emerging economies in the East. “Pidcock also likes ‘smart companies’ such as Taiwan’s HTC which has grown to challenge Apple’s dominance of the smart phone market,” says Troue.

BROKER RATINGS

Suitability to market: Good

Investment strategy: Good     

Charges: Average

Adviser remuneration: Average

Overall 6/10

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