After a difficult year for Invesco Asia (IAT ), co-manager Fiona Yang is set to take on the role of lead manager as Ian Hargreaves steps back with succession planning coming into play.

Half-year results today showed that net asset value (NAV) dropped 5.9% in the six months to 31 October, underperforming the investment trust’s benchmark, the MSCI All Country Asia ex-Japan index, which lost 2.9%. The share price discount to NAV widened to 14.2% from 12.4% over the period, leading to a 7.8% decline for shareholders.

Over the past 12 months, including dividends, the share price has fallen 15.8%, the second-largest fall in the five-trust Asia Pacific Equity Income sector.

However, longer-term performance under Hargreaves (pictured above), who has worked on the trust since 2011, joined by Yang five years ago, is robust. The trust was awarded the Best Asia-Pacific Equities Trust at Citywire’s awards in November.  

Over five and 10 years the portfolio returned 30.5% and 140.3% respectively, while the benchmark is up just 12.3% and 85.6% respectively.

Investors will hope the long-term track record will be maintained as the managers change roles, with Yang taking over as lead from May. Stifel analyst Will Crighton said that while it is ‘unclear if this changes the dynamic in reality’, it ’seems likely to be related to succession planning for the future’.

Chair Neil Rogan said the two managers would ‘continue to work very closely together’ and the directors were ‘impressed’ by Yang’s contribution and ‘pleased to support her promotion’.

Performance

While stock selection from the managers held up during the period, it was their underweight to India and exposure to Hong Kong and China that pulled down performance.

India was the region’s best performer and the two biggest contributors to the portfolio were from the country: genetics manufacturer Aurobindo Pharma and Mumbai-based Shriram Transport Finance.

During the period the duo increased their weighting to India by 2 percentage points to 11%, 7% less than the benchmark.

‘The outlook for India remains positive from a top-down perspective, but that is reflected in the market’s valuation which remains elevated relative to its history,’ Hargreaves and Yang (pictured above) said. ‘More than one-third of the companies in the MSCI India index currently trade on a valuation multiple higher than 40 times expected earnings for the fiscal year ending March 2025.’

Turning to China, the managers said macroeconomic conditions were ‘starting to improve’ which suggests it may have hit the bottom of the cycle. They are seeing decent earnings growth in consumer-facing and internet companies and believe the upside risk is now greater than the downside risk.

A half-yearly dividend of 7.20p was paid in November in accordance with the policy of paying two dividends over a year, amounting to approximately 4% of assets.

Tender offer

The company has 15 months left in a five-year performance review, which will assess if the board will undertake a 25% tender offer to buy back up to a quarter of its shares from investors.

As announced in August 2020, the company’s returns have to exceed its benchmark, net of withholding tax, by 0.5% per year on a cumulative basis.

According to broker Stifel, at the end of October last year the NAV had grown 39% over 3.5 years, a 9.9% annual return, while the index had gained just 7.1%, or 2% on an annualised basis.

‘The fund is comfortably ahead of the benchmark and so such a tender offer looks highly unlikely,’ said Crighton.