Jupiter Asian Income: November 2021 fund update

• Jason Pidcock has an eye for detail, focusing on both company specifics and wider economic trends
• An emphasis on income adds something a little different to most Asian funds that focus on growth
• The manager has a long and successful track record investing in Asia for income
• This fund is on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

The Jupiter Asian Income fund aims to pay a regular income and provide investment growth over the long-term. This makes it different from many other Asian funds that focus on growth. The fund mainly focuses on more developed Asian markets, such as Singapore, Hong Kong, Australia, and Taiwan, though it also invests in some higher-risk emerging markets. We think the fund could form part of an income portfolio or help to diversify the Asian portion of a broader global portfolio. If you don’t need the income and choose to reinvest it, it could boost future growth potential.

Manager

Jason Pidcock started running funds investing in Asian companies in 1996 and spent three years prior to this analysing and investing in the region. In 2005 he set up BNY Mellon Asian Income (previously Newton Asian Income) and became one of the first UK fund managers to run an Asian fund focused on income, rather than purely growth. He built a strong reputation from running this fund before he left in 2016 to set up Jupiter Asian Income.

Pidcock is the sole manager on this fund and dedicated to this single strategy. He also collaborates with some of the wider investment team at Jupiter to discuss ideas and get additional input. We view him as a meticulous investor with a focus on the finer details, and we like that he's aware of both his strengths and weaknesses.

Pidcock recently took on a role as co-ordinator of the global equities team at Jupiter. This is not a managerial role but encourages the sharing of information about global companies and themes among the team. We don’t think this role takes up too much of the manager’s time and could ultimately help him see better what themes are occurring in what is an increasingly global competitive landscape.

Process

Pidcock believes investing in companies that generate strong profits and growing dividends is the best way to achieve good returns over the long run. He thinks companies that are willing to share a portion of their profits as dividends care most about the interests of their shareholders.

This fund's main aim is to provide an income at least 20% higher than the fund's benchmark, the FTSE Asia Pacific ex Japan Index. It also aims to provide greater capital growth than this benchmark. To do this, the manager looks for companies that pay an attractive income and have the potential to grow dividends over time. He also invests in some companies that pay a lower income but have greater growth potential.

Companies that make plenty of cash, have low levels of debt and are in good financial health are favoured. They should also be run by robust management teams and having regular contact with them is key to the manager's process. Pidcock also considers wider economic themes in his analysis and takes note of the political landscape which he feels has a bearing on what occurs in different economies.

We like the fact Pidcock keeps things simple with this fund. He sticks to his tried-and-tested philosophy and doesn't do anything complicated in the pursuit of short-term gains that could compromise long-term performance. More and more Asian companies are starting to pay dividends, and he simply aims to take advantage of this. He invests in a fairly small number of companies, currently 29, which means each one can have a significant impact on performance though this increases risk.

The manager mainly focuses on larger businesses in developed Asian markets, such as Hong Kong, Singapore and Australia. The fund can invest in emerging markets as well, and currently has some exposure to markets such as India and China.

The manager has reduced exposure to China this year and it now only makes up 2.0% of the fund. He has concerns over the strength of China’s economy, levels of corporate debt, and political and regulatory risks. Where he does invest in China, he’s focused on companies producing consumer staples that are in a good financial position. Chinese-related companies recently sold from the fund include insurance and finance companies Ping An and AIA, internet company Tencent, and Hong Kong Exchange.

Exposure to Australia has increased to 26.5% of the fund. Recent investments include road operator company Transurban and oil & gas company Woodside Petroleum.

Culture

At Jupiter, fund managers are given autonomy to invest the way they see fit and believe will benefit investors over the long run, but with an appropriate level of challenge from others in the business. The business setup allows Pidcock to focus on fund management and maintain flexibility.

All fund managers at Jupiter receive support from the Sustainable Investing and Governance Research teams. While this is not an ESG-specific fund (Environmental, Social and Governance issues) and does not apply exclusions, Pidcock takes the team’s views into account and has always focused on companies with good governance standards. He takes a ‘best-in-class’ approach and in each sector he focuses on those with the highest standards.

The manager invests his own money in this fund, and we think he’s incentivised in a way that could maximise long-term performance, meaning his interests should be aligned with those of investors.

Cost

This fund is available at a net ongoing fund charge of 0.69%, after a 0.29% discount available through the HL platform. The usual ongoing charge is 0.98%. This makes it one of the lowest cost funds available in the Asia Pacific ex Japan sector through HL. The fund discount is achieved through a loyalty bonus, which could be subject to tax if held outside of an ISA or SIPP. The HL platform fee of up to 0.45% per year also applies.

Performance

2020 was a tougher year for income funds. Many investors favoured companies expected to deliver higher or more sustainable levels of growth, such as technology companies, and this benefited funds with a growth-focused approach. These companies don’t often pay much in the way of dividends though, so they don’t usually feature in income funds.

2021’s been different, as income-focused, lowly valued and more economically sensitive sectors have performed better. This has benefited the fund and over the past year it’s grown 19.64%* compared with 11.30% for the FTSE Asia Pacific ex Japan index. Please remember past performance isn’t a guide to future returns.

Lower exposure to China has also helped, as China hasn’t performed as well as most other Asian markets, hampered by regulatory crackdowns and energy shortages. On the other hand, having more invested in Australia, Singapore and Taiwan than the market has helped. The manager has also increased exposure to India since 2019 and this boosted returns in 2021 given the strength of the market. Investors should note the lack of exposure to China means the fund could lag the market if China performs strongly.

Over the length of his career, Pidcock's funds have performed better than the broad Asian stock market. His focus on larger, quality companies that tend to generate cash at a steadier pace than others means we expect the fund to hold up relatively well when markets go through a tough patch. This won't necessarily happen all the time though.

The fund has paid an attractive annual income so far since launch, and its yield has also remained comfortably ahead of the FTSE Asia Pacific ex Japan Index. The fund currently yields 3.2%. That said, 2020 was a challenging year as many companies had to cut or suspend dividends during the worst of the pandemic. Dividends have been recovering this year and Pidcock believes dividend growth for the fund will be 29% above 2020 levels.

Remember dividends are variable and yields are not guaranteed nor an indicator of what you might get paid in future. The fund’s charges are taken from capital, which could increase the yield but reduces the potential for capital growth.

Past performance is not a guide to the future. Source: *Lipper IM to 31/10/2021.

Find out more about Jupiter Asian Income, including charges

Jupiter Asian Income Key Information Document