6th Nov 2014 11:15
LONDON (Alliance News) - Schroder Oriental Income Fund Ltd Thursday reported a double-digit net asset value total return in its last financial year despite sterling's strength against currencies in a number of markets in which it invests.
In a statement, Schroder Oriental Income Fund said its net asset value per share recorded a total return of 10.9% over the 12 months to the end of August. The share price total return was 15.2% in the same period.
The fund's performance compares with a total return of 11.3% for the reference index, the MSCI All Countries Pacific ex Japan Index.
"After a difficult first half, the portfolio performed well versus the reference index in the second, and ended the year broadly in line with the reference index for the year as a whole. The key contributors were stock selection in Australia (benefiting from our continued caution on the mining sector), Korea and Singapore," Schroder Investment Management Ltd said in its report.
"Headwinds were represented by stock selection shortfalls in New Zealand, Taiwan (weakness in telecom stocks) and Hong Kong. Country allocation was generally positive with underweights in China, Korea and Malaysia, and overweights in Thailand and Hong Kong adding value. In sector terms, the main positive contribution came from stock selection in material, energy, industrials and financials," Schroder Investment Management added.
Schroder Investment Management said Australia, Hong Kong, Singapore and Taiwan have remained the main geographic exposures in the portfolio, with Australia and Hong Kong being the main areas added to over the financial year.
"Thailand remains the most significant emerging ASEAN market, although we reduced exposure modestly over the year. Our biggest under-weightings relative to the reference index remain Korea and China. In sector terms we reduced exposure in consumer, real estate, materials and telecoms, while adding to industrials, information technology, and energy," Schroder Investment Management said.
Schroder Investment Management also picked out credit markets as the main issue facing investors at present, rather than the equity markets.
"The latter do not look excessively expensive in valuation terms, but credit markets look like the unnerving mirror image of where they were in 2008," Schroder Investment Management said.
"Then, borrowers faced potentially ruinous rates to access credit. Now there appears little discrimination in credit as Spain's borrowing cost converges towards Germany and the US. Meanwhile, it is difficult to ignore the rise in geopolitical risks and continued signs of deflationary pressures, in particular a slower growth trajectory in China. This makes us nervous about predicting short term market direction," Schroder Investment Management added.
That said, Schroder Investment Management said that at a stock level it continues to believe that the longer-term case for income investing in Asia remains securely based.
"The equity markets offer a diverse range of countries and sectors where solid income stocks can be found, and we take comfort in the strong aggregate metrics of the company's portfolio in terms of superior cash generation, higher than average returns on equity and lower financial gearing," Schroder Investment Management said.
Schroder Oriental Income Fund shares were down 0.05 pence at 193.95p on Thursday.
By Samuel Agini; [email protected]; @samuelagini
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