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Schroder Oriental Income
Investment trust
Launched in 2005, the Schroder Oriental Income Fund aims to provide income and capital growth by investing in Asia Pacific companies (including Australia and New Zealand) that offer attractive yields and growing dividend payments.
Our opinion
We like the relative stability that the income focus offers this trust versus many others in the region, especially when paired with the manager’s total return mindset. Richard’s experience, combined with the strength and depth of Schroders’ analyst team, also make the trust stand out from its peers. We believe it is an excellent option for investors seeking exposure to the Asia Pacific region with both an income and a growth objective. The trust has also offered a consistent growth in dividends since launch.
Trust manager
Founded in London in 1804, today Schroders operates in more than 25 countries, employing more than 5,000 people, close to the markets in which they invest. Schroders is listed on the London Stock Exchange and invests in a range of asset classes including equity, fixed income, multi-asset and alternatives.
Richard Sennitt replaced industry veteran Matthew Dobbs as manager of this trust at the end of 2020. Richard began his investment career back in 1993 as an analyst on the Schroder Japanese equity team. In 1997 he moved onto the Pacific team, where he had broad exposure to both developed and emerging markets as a regional fund manager. He has also managed the Schroder Asian Income fund since 2001, although it has only been in its current form since 2009.
Having run Asian equities for over three decades, it is lucky I am a big fan of jigsaws – the tougher the better!
Richard SennittTrust manager
Investment board
The four-strong board is headed by Paul Meader, a 30-year veteran in the industry with experience in financial markets in London, Dublin and Guernsey. Paul holds a number of directorships in other companies, including ICG-Longbow Senior Secured UK Property Debt Investments Limited, KKV Secured Loan Fund Limited, Guaranteed Investment Products 1 PCC Ltd and Volta Finance Limited. He is also a Fellow of the Chartered Institute of Securities & Investments, a former Commissioner of the Guernsey Financial Services Commission and past chairman of the Guernsey International Business Association.
The other three board members are Nicholas Winsor, Alexa Coates and Kate Cornish-Bowden.
Investment process
Richard has a structured but pragmatic process. He analyses how economic policies will affect his investment process and his philosophy is consistent across the various funds and Trusts he runs. He believes long-term returns are driven by valuation considerations, but he is willing to exploit other opportunities if the investment case is strong enough. Ideas are sourced from Schroders’ huge regional analyst team, brokers and Richard himself. He then invests in the best 60 to 80 non-consensus ideas. Richard will also consider other, more qualitative factors, such as barriers to entry and strength of management.
ESG
ESG - Integrated
ESG factors are integrated throughout the investment process for the whole of the Schroders company, this trust included. ESG analysis helps determine the sustainability of a company’s earnings and potential risks.
Schroder’s ESG work begins with their ‘SustainEx’ tool developed in-house by a 25 strong central ESG team. Sustainex has won a number of awards and continues to be upgraded all the time. It quantifies the positive and negative impacts companies have on society. Most approaches measure impact relative to a benchmark where as SustainEx calculates a quantifiable overall impact. There are over 45 positive and negative externalities which have been drawn from over 400 academic studies and are applied to 9,000 global companies. The tool helps fund managers to identify previously unaccounted for ESG risks and helps them to build these risks into their valuation framework.
Each individual strategy has their own ESG specialist on the team. In addition to SustainEx, analysts also use the Context tool which allows analysts to add their own input. It is also used in the valuation process, with higher discount rates applied to weak ESG companies. Some companies ESG will be so weak that they are considered uninvestable. ESG also helps shape portfolio construction. Those stocks with a higher ESG risk may have a reduced weight in the portfolio, or if the risk is high enough, no position at all.
Risk
In general, income-oriented investments tend to be lower risk than those that are growth-focused and the same is true here. Richard’s disciplined and detailed stock research and selection process ensures that the portfolio is well diversified, which also helps to reduce the risk in these more volatile markets. Movement in currencies is an additional risk that investors should take into account.
Gearing
The manager sets the gearing of the Company in conjunction with the Board, who monitor the level closely. The maximum allowable is 25% of the net assets and Richard has a revolving multi-currency credit line of £100m at his disposal. Gearing has not exceeded 6% in the past decade.
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