- 2017 was a tough year for funds investing in Asia for income
- Many investors favoured higher-growth companies that tend not to pay dividends
- We are confident in Jason Pidcock's ability to deliver long-term income and capital growth
Jupiter Asian Income combines exposure to the exciting growth potential of Asian markets with a regular income.
A focus on dividend-paying companies located in developed Asian economies, such as Australia and Singapore, differentiates the fund from many of its peers that focus on capital growth and are biased to emerging Asian markets, such as China and India.
We believe this fund could provide diversification to an income portfolio, or the Asian portion of a wider portfolio. It has the flexibility to invest in emerging markets though, which can increase risk.
We recently met Jason Pidcock for an update on the fund. The past year has been tougher for Asian income funds, but we're encouraged by the manager's longer-term experience and track record. We view him as a sensible investor and remain optimistic about the fund's potential for both income and capital growth. The fund features on the Wealth 150+ list of our favourite funds.
Performance and portfolio review
Most funds investing in Asia for income underperformed the broader Asian stock market over the past year. Investors favoured companies in higher-growth areas, such as technology, which tend to reinvest their earnings to finance new projects or enhance future growth potential. Funds such as Jupiter Asian Income tend to avoid these companies as they don't often pay high or regular dividends to shareholders.
The fund still delivered a positive return of 4.8%* over the past 12 months, but lagged the performance of the FTSE AW Asia Pacific ex Japan Index. Please remember this isn't a guide to how the fund will perform in future.
|Annual percentage growth|
| Feb 2013 -
| Feb 2014 -
| Feb 2015 -
| Feb 2016 -
| Feb 2017 -
|Jupiter Asian Income||N/A**||N/A**||N/A**||31.4%||4.8%|
|FTSE AW Asia Pacific ex Japan||-10.5%||18.7%||-11.8%||44.6%||13.4%|
Past performance is not a guide to the future. Source: Lipper IM* to 28/02/2018.
**Full year performance data is unavailable.
A lack of exposure to banks and miners, which performed well, also held back returns. Companies in these sectors tend to lack the sustainability of earnings growth that Jason Pidcock seeks. He instead focuses on more cash-generative companies that he believes have greater growth prospects and are in better financial health.
A few other individual stocks also weighed on returns. For example, GT Capital Holdings, which invests in businesses related to areas such as banking, property and insurance, was weak. The manager reduced the size of this investment after the company cut its dividend in order to reinvest more of its earnings back into the business. Overall he invests in a relatively small number of companies, which means each one can have a significant impact on performance and can increase risk.
Over the longer term we expect Jason Pidcock to invest in some of the region's best performing companies. In the meantime, the fund provides investors with an attractive income. It currently yields 4.0%, although yields are variable and not guaranteed or an indicator of future income.
One of the main changes made to the fund since its launch in March 2016 is a reduction in its exposure to Australia from 35% to 26%. The manager believes Australia remains a great place to invest, especially as many companies pay attractive dividends. However, he thinks some companies have too much debt and prefers to focus on companies with lower debt and stronger cash flows.
Jason Pidcock remains optimistic about the longer-term potential for both growth and income from the Asia Pacific region. Company earnings growth has picked up and he expects this to continue over the coming year. This leaves companies in a strong position to pay dividends to shareholders, while it could also be supportive of share prices.
Periods of market volatility should not be ruled out though. The prospect of higher interest rates could put pressure on share prices, partly because the returns from cash start to look relatively more attractive. Higher interest rates could also increase the cost of borrowing and makes debt more expensive to pay back, which could put pressure on highly-indebted companies.
Jason Pidcock invests in companies he believes will remain stable even during tougher market conditions. His investment style means we think the fund is less likely to keep up with a rapidly rising market, as we have seen over the past year, but it should provide some resilience when markets are weaker. This could put the fund on a solid footing to achieve its aims over the long term.
Please note charges can be taken from capital, which can increase the yield but reduces the potential for capital growth.
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