Trade wars, technology and Asian income
FundCalibre Managing Director Darius McDermott interviews well-known Asian income manager Jason...
The continent of Asia is made up of some 48 countries, and is home to almost 60%* of the world’s population. It’s a fascinating and diverse region, which is perhaps why it conjures up different images for all of us – whether it’s the Great Wall of China, the modern cityscape of Hong Kong, motorbike madness in Vietnam or a white sandy beach.
There are also thousands of investment opportunities to be found there: 17,912 companies are listed in Asia – more than in the US, UK and Europe combined**. However, while many investors think of Asia as a growth region – which it undoubtedly is – it is also a strong region when it comes to dividend income.
Jason Pidcock, manager of Elite Rated Jupiter Asian Income fund, began investing in the Asia Pacific (excluding Japan) region in 1993 and is one of the most experience equity income managers in the asset class. We caught up with him last week, when he visited our offices. Here’s what he had to say.
“It’s been a busy summer. I’ve met 11 of the 30 companies that I currently own in the portfolio. I’m very happy with the way it is positioned and turnover is low: I’ve only bought one new stock this year – Embassy Office Parks REIT. It’s an Indian company that had its IPO in March this year and it’s brought more smiles to my face than any other holding: we were anchor investors and got a good allocation at the initial offering price of 300 rupees – it is now trading at 409. The company owns grade A office properties – business parks rented to multi-nationals and local blue chip companies. It has a strong balance sheet and high dividend yield (7%).
“Embassy isn’t the only property stock I own – I have about 20% of the fund invested in the sector, and its been the strongest sector over the past 12-18 months. Some other examples are companies that own shopping malls.
“Shopping malls today are less about being places to go and buy something. They are more about being places for people to socialise and where companies can showcase their products – which are then bought online. It’s been a tough period, but it should pick up again, as the companies evolve and change their offerings. Human beings are sociable animals and there are also still things you want to see and feel before you buy.
“I’m also positive on technology and consumer services and I hold three casino operators. Some casinos are really embracing new trends – take Star Entertainment as an example. It’s a casino company in Australia which is actively reducing its carbon footprint, use of plastics and energy in its hotels.”
“One area I have changed since the fund launched is to divest out of airports. Flying is the new smoking: lots of people picked up the habit, then got health issues, then regulation came in. It’ll be the same for aviation in my view.
“Young people’s attitude towards flying is changing and there is now ‘flight shaming’ [the name of an anti-flying movement that originated in Sweden last year, which encourages people to stop taking flights to lower carbon emissions]. This will change consumer patterns – albeit slowly. Governments will benefit though as they’ll have an excuse to tax the sector – via airline tickets and other methods.”
“Up to 20% of the fund is invested in companies that yield less than the index. At the moment it is just three stocks: Ping An, Tencent and AIA. The aim of the fund is to grow dividends over time, so I need some of these companies to make that possible.
“Ping An, is a Chinese life insurer. It’s a top 20 company globally by market cap. It’s cheap, innovative and could one day be the world’s largest company. The amount of data it has on Chinese people is extraordinary. And the company isn’t just about insurance. It owns a bank, is a big fintech company and it employs thousands of engineers. It also has 1.3 million agents selling insurance.
“AIA is also a life insurance company, based in Hong Kong, but is much smaller in scale. To put it into perspective with Ping An, it has 40,000 agents. Last week I met the deputy CFO and head of strategy. I met the head of technology and CFO last year.
“Tencent is one of the world’s most valuable technology companies. It has its fingers in many pies such as social networks, music, e-commerce, mobile games, internet services, payment systems, and smartphones. It has a 0.4% yield, but a big cash position and, going forward, dividend growth should be in line with earnings growth. I expect it to pay more in the way of dividends as its growth slows.
“In my opinion, if you own Tencent and Ping An, you have the best that China can offer.”
*Source: World Population Review, August 2019
**Source: World federation of Exchanges, December 2018