Invesco Asia Trust
plc
Half-Yearly
Financial Report
For the Six Months
to 31 October 2020
Investment Objective
The Company’s objective is to provide long-term capital growth
by investing in a diversified portfolio of Asian and
Australasian companies. The Company aims to achieve growth in its
net asset value (NAV) in excess of the Benchmark Index, the
MSCI AC Asia ex Japan Index (total return, net of withholding
tax, in sterling terms).
Financial Information and Performance
Statistics
The Benchmark Index of the Company is
the MSCI AC Asia ex Japan Index (total return, net of
withholding tax, in sterling terms)(3).
Total Return Statistics (1) (dividends
reinvested)
|
Six Months
to |
Six Months
to |
|
31 October |
31 October |
|
2020 |
2019 |
NAV per share(2) |
24.0% |
-3.7% |
Share price(1) |
19.9% |
-6.7% |
Benchmark index
(2)(3) |
18.9% |
-1.9% |
Capital Statistics
|
At |
At |
|
|
31 October |
30 April |
|
|
2020 |
2020 |
change % |
Net assets (£’000) |
231,729 |
186,948 |
24.0% |
NAV per share(2) |
346.62p |
279.64p |
24.0% |
Share price(1) |
304.50p |
254.00p |
19.9% |
Benchmark index (capital
return)(1)(2) |
1,059.44 |
904.96 |
17.1% |
Discount(2) per ordinary
share (cum income) |
(12.2)% |
(9.2)% |
|
Average discount over six
months/year(1)(2) |
(12.7)% |
(11.0)% |
|
Gearing(2): |
|
|
|
– gross |
4.0% |
5.5% |
|
– net |
3.8% |
4.3% |
|
– net cash |
nil |
nil |
|
(1) Source: Refinitiv.
(2) Alternative Performance
Measures (APM), see pages 16 and 17 for the explanation and
reconciliations of APMs. Further details are provided in the
Glossary of Terms and Alternative Performance Measures in the
Company’s 2020 annual financial report.
(3) Index returns are shown on a
total return basis, with income reinvested net of withholding
taxes. Previously Index returns, on a total return basis, were
shown with income reinvested gross of withholding taxes. This
change is also reflected, retrospectively, to any long term total
returns shown in this half-year report for comparison and
consistency.
Chairman’s Statement
“Investment trusts have a variety of
tools available that differentiate them from open-ended funds. When
we believe that they will have an impact, we will deploy them.”
“The case for Asia relative to the world does appear strong
and that is a good starting point.”
“Asia has managed the Covid-19 crisis
relatively well, and balance sheets are generally sound.”
“We have introduced a new enhanced
dividend policy and a performance conditional tender offer.”
I concluded my last statement by saying “it is at times like
these that an active management style should prosper”. It is
pleasing to report that is exactly what has happened in the six
months to 31 October 2020. Performance has been strong with
NAV per share up by 24.0% while our benchmark MSCI AC Asia ex Japan
Index was up 18.9% (both on a total return basis, net of
withholding tax). Your share price rose by a smaller 19.9% as the
discount widened from 9.2% to 12.2%.
Performance attribution shows that both country and sector
allocations contributed positively but that the greatest
contribution came from stock selection. That is what active
portfolio management is all about. Ian Hargreaves reviews the
portfolio, performance and outlook in detail in his Portfolio
Manager’s Report.
The Investment Case
We believe that the Investment Case for Invesco Asia Trust plc
(“the Company”) remains strong. The philosophy is well articulated
and consistent, searching for Asian companies whose shares trade at
a significant discount to fair value. Led by Ian, the team is
focused on stock selection and continues to operate an
institutional strength investment process with a long term
performance record to match.
One change is that Ian has a new boss: Stephanie Butcher has taken over as CIO for
Invesco in Henley. We have been impressed by Stephanie and believe
that her approach is positive for Ian, the Company and indeed for
Invesco generally.
The Corporate Proposition
Our belief is that for an investment trust to deliver maximum
value for its shareholders, the Board has to have a Corporate
Proposition that sits alongside the Investment Case and enhances
it, making the Company doubly attractive to potential and existing
shareholders.
We have announced a range of initiatives over the past two
years, including a second, lower tier management fee, an upgrade to
our website and more active engagement with our individual
shareholders. All these are designed to spark new demand for the
company’s shares and to reduce the discount. However, with the
discount moving above 10%, we decided to go further and announced
two new measures on 28 August.
First, a new enhanced dividend policy: The Board now aims
to pay, in the absence of unforeseen circumstances, a regular
six-monthly dividend equivalent to 2% of the Company’s NAV,
calculated on the last business day of September and February. The
dividends will be paid to shareholders in November and April.
Dividends will be paid from a combination of the Company’s
revenues, revenue reserves and capital reserves as required. So
shareholders will be able to look forward to an annual dividend
yield of approximately 4% of NAV. Shareholders should note that the
new dividend policy of paying dividends calculated as a percentage
of NAV means that dividends will fall if NAV falls. To be clear,
there is no intention to change the Company’s investment policy nor
the portfolio manager’s investment approach as a result of the new
dividend policy: Ian and the team will manage the portfolio in
exactly the same way as before. On 23 October, we announced a first
interim dividend of 6.7p per ordinary share in respect of the year
ending 30 April 2021. 6.7p is equivalent to 2% of the
Company’s NAV on the last business day of September 2020. A second interim dividend is
expected to be paid in April 2021
again equivalent to 2% of NAV, giving a total distribution of
approximately 4% of NAV over the year.
The second measure was the introduction of a performance
conditional tender offer. Under the terms of the proposal, the
Board is undertaking to effect a tender offer for up to 25% of the
company’s issued share capital at a discount of 2% to the
prevailing NAV per share (after deduction of tender costs) in the
event that the Company’s NAV cum-income total return performance
over the five year period to 30 April
2025 fails to exceed the Company’s comparator index, the
MSCI AC Asia ex Japan Index (net of withholding tax, total return
in sterling terms) by 0.5% per annum over the five years on a
cumulative basis.
Shareholders already have the opportunity to vote on the
continuation of the Company every three years, but the Board
believes that also providing shareholders with the option to tender
a proportion of their shares for a cash price close to NAV if the
Company underperforms constitutes a pragmatic and attractive
initiative, particularly if the shares were to be trading at a
material discount at the time.
Total Return (dividends reinvested) to
31 October 2020(1)
|
One |
Three |
Five |
Ten |
|
Year |
Years |
Years |
Years |
Net asset value (NAV) |
15.5% |
11.8% |
90.5% |
148.8% |
Share price |
15.7% |
14.0% |
90.6% |
140.4% |
Benchmark index(2) |
15.9% |
16.4% |
88.2% |
107.7% |
(1) Source: Refinitiv.
(2) The benchmark index of the
Company was changed on 1 May 2015 to
the MSCI AC Asia ex Japan Index from the MSCI All Companies Asia
Pacific ex Japan Index (both indices total return, sterling
terms).
Other News
After consultation with our major shareholders we have made a
minor change in the benchmark index we use for performance
comparison purposes. It is still the MSCI AC Asia ex Japan Index,
but we are now showing it calculated on a net of withholding tax
basis instead of gross. As the Company pays withholding tax, we
believe this is the fairest way to evaluate performance.
It was disappointing that our Annual General Meeting on 3
September had to be a closed meeting because of the Covid-19
restrictions. Ian’s presentation was uploaded to our website that
day and is still there. I hope shareholders found it useful.
Tom Maier retired from the Board
at the conclusion of the AGM after serving eleven years. We thank
him for his sustained contribution to the Company and in particular
the keen focus that he gave to analysis of investment performance,
which will continue. His replacement, Vanessa Donegan, had already joined the Board in
October 2019 so we revert to four
Directors.
There have been no share buybacks over the period.
Update
From 31 October to 21 January, NAV per share has risen by 26.2%,
outperforming the MSCI AC Asia ex Japan Index return of
+19.5%. The share price has risen by 34.6% with the discount
narrowing from 12.2% to 6.3%.
Outlook
Many are wondering if they have missed the opportunity to invest
in Asia that presented itself in
2020. Asian markets have bounced 59% off their March lows and are
at new highs. However, even now Asia has underperformed the MSCI World Index
sharply over 10 years with the MSCI Asia ex Japan Index +147%
versus the World’s +218%.
There are possible tailwinds for markets with the return of
consumer and corporate confidence post Covid-19, a recovery both of
domestic and export markets for Asian companies, support for
capital inflows from a weaker US dollar. The new Regional
Comprehensive Economic Partnership comprising the ASEAN countries
plus China, Japan, South
Korea, Australia and
New Zealand will provide fresh
longer term benefits. Possible headwinds include above average
starting valuations, Covid-19 related setbacks, the threat of
rising interest rates as economies recover and greater regulation
of the large technology companies that have dominated stock markets
last year.
Overall there are too many variables to make a confident
prediction of absolute returns from here. But the case for
Asia relative to the world does
appear strong and that is a good starting point. Moreover,
political uncertainties have risen to the fore. Political risk has
always been a feature of investing in stock markets and it is
particularly so in Asia. While
political risk can lead to falls in stock markets, it can also lead
to opportunities for gains. One of the reasons why Asian markets
have typically traded at lower valuations than, say, America is the
political risk discount. The recent US Executive Order
restricting US persons from investing in certain Chinese companies
has affected some of our institutional shareholders who manage
money on behalf of American citizens.
Neil
Rogan
Chairman
25 January 2021
Portfolio Manager’s Report
Portfolio Manager
Ian Hargreaves was promoted to
Co-Head of the Asian & Emerging Markets Equities team in
September 2018. Ian manages pan-Asian
portfolios and covers the entire Asian region in his remit. He
started his investment career with Invesco Asia Pacific in
Hong Kong in 1994 as an investment
analyst where he was responsible for coverage of Indonesia, South
Korea and the Indian sub-continent, as well as managing
several regional institutional client accounts. Ian returned to the
UK to join Invesco’s Asian Equities team in 2005, working on the
portfolio as part of the investment team. He was appointed as joint
Portfolio Manager in 2011 and became the sole Portfolio Manager on
1 January 2015.
How has the company performed in the
period under review?
The Company’s net asset value increased by 24.0% (total return,
in sterling terms) over the six months to 31
October 2020, which compares to the benchmark MSCI AC Asia
ex Japan Index return of 18.9%.
Markets enjoyed a strong recovery over the six month period,
boosted by significant stimulus from central banks and the
reopening of economies across the world as Covid-19 lockdowns were
lifted. There has also been optimism surrounding progress on a
Covid-19 vaccine and an ongoing economic recovery. While the
recovery in markets has been V-shaped, there has been a marked
divergence in performance between sectors, as healthcare, internet
and technology companies have fared far better than financials,
energy and travel-related companies.
There has also been a marked turnaround in relative performance
for the portfolio, which has been pleasing to see given the changes
we made earlier in the year. Having begun the year with a tilt
towards more cyclical areas, reflecting our expectation that they
would benefit from a gradual cyclical recovery in 2020, the
portfolio was repositioned to account for the sudden change in
outlook for economic growth brought about by the pandemic. The most
significant adjustment being a reduction in exposure to financials.
However, we did not want to reduce the portfolio’s ability to
participate in a rebound. Rather than taking defensive action and
shifting exposure to less economically sensitive areas with steady
earnings streams, such as utilities or consumer staples companies,
we preferred to add to selected cyclical businesses that had scope
for earnings to recover quickly as conditions normalise. We have
been able to find what we consider to be deep discounts to fair
value in these areas, with conviction levels supported by the
strong balance sheets that some of these companies have.
What have been the biggest
contributors? And detractors?
Technology and internet companies have been the best performers
over the period, further demonstrating the appeal of their strong
fundamentals and attractive growth prospects. Taiwanese memory chip
designer MediaTek was the biggest contributor thanks to robust
demand for its higher margin 5G chip and excitement over its new
high-end, next generation microprocessor that helps process AI
(artificial intelligence) tasks faster, using less power. Delta
Electronics benefited from its exposure to major industry trends
(5G, automation and cloud) that should support a recovery in
margins and deliver more sustainable growth over the medium-term,
while ASUSTeK Computer has seen strong demand for PCs and notebooks
given the working/studying from home trend. Taiwan Semiconductor
Manufacturing also made strong gains, with investors increasingly
focused on the upside potential from Intel outsourcing some of its
chip production, a move that could see the size of its total
addressable market increase by around 40%. Chinese internet
companies have continued to outperform, with JD.com and NetEase
both adding value as solid Q1 earnings reflected the fact that
e-commerce and online gaming companies had seen little disruption
to their business and may have even benefitted from the
stay-at-home trend. Both companies also enjoyed successful
secondary listings in Hong Kong.
The portfolio’s exposure to Chinese consumer-related companies has
also contributed positively. Baijiu distiller Jiangsu Yanghe
Brewery and fitted furniture manufacturer Suofeiya Home Collection
(both A-shares) saw evidence of a strong recovery in demand as
lockdowns were lifted.
More recently, auto-related stocks have been a support. Hyundai
Motor has benefited from a recovery in sales, particularly in its
home market where there is strong demand for its new, higher
margin, SUV models; while the market has also turned more positive
on its electric vehicle (EV) business plans. Mahindra &
Mahindra has enjoyed strong tractor sales while Minth Group made
large gains after bullish comments from management raised
expectations over its new battery housing business, which is
expected to make a growing contribution to revenues next year.
On the other hand, China Mobile detracted as the market
continued to show a preference for stocks with higher growth
characteristics. Stock selection in the energy sector counted
against us as CNOOC underperformed given the prospect of slowing
demand and a weakening oil price. CK Hutchison has also proved to
be Covid-19 sensitive, with weaker earnings from its ports, retail
and energy & infrastructure businesses. However, the business
continues to be well managed, and as conditions normalise, we would
expect the group to return to delivering good earnings growth and
generating strong free cash flow. The recently announced deal to
sell its European telecom towers will also help reduce gearing and
could be a positive catalyst for the share price.
Finally, financials remained out of favour, with our holdings in
banks and insurance companies detracting from performance. While
there are legitimate concerns surrounding low-rates, slow growth
and rising, non-performing loans (NPLs) we believe the market has
mispriced the risks for better quality operators with strong
capital positions.
Key |
Total |
Contributors |
impact % |
MediaTek |
1.59 |
JD.com |
1.35 |
Jiangsu Yanghe Brewery |
0.81 |
Mahindra & Mahindra |
0.58 |
Suofeiya Home Collection |
0.40 |
|
|
|
|
Key |
Total |
Detractors |
impact % |
China Mobile |
–0.81 |
CNOOC |
–0.58 |
CK Hutchison |
–0.52 |
China Pacific Insurance |
–0.47 |
Korean Reinsurance |
–0.40 |
How has positioning changed?
We continue to believe that buying businesses for less than they
are worth is the most sustainable way to make money for
shareholders.
Technology and internet companies have been big beneficiaries of
a new tech cycle with the launch of 5G networks, and changes in
consumer behaviour, such as working from home and an increase in
the trend towards online shopping. However, the strong gains seen
in share prices year-to-date suggest their strong fundamentals and
improved earnings prospects are being increasingly recognised, and
we have been taking profits.
The healthcare sector remains an area of the market where we
have only limited exposure, given that we generally find valuations
very rich. Some sub-sectors, such as biotech and contract research
organisation (CRO), have what we consider to be an unfavourable
balance of risk/reward given the difficulty in forecasting R&D
success, without which there could be significant downside risk.
The valuations of the more traditional Chinese pharma companies are
more reasonable, but this reflects a hostile regulatory environment
that is and will continue to lead to price deflation in traditional
chemical drugs. The Chinese government is keen to lower pricing to
mitigate the cost of providing broader medical expense cover. This
usually means lower profitability levels which justifies a lower
valuation.
We are looking for new ideas trading at significant discounts to
our estimate of fair value, with deep discounts currently available
in more cyclical areas of the market, where there is less
confidence in the pace of recovery. The companies that interest us
most tend to be Covid-19 sensitive industrials where the pandemic
is unlikely to have materially changed fundamentals, but earnings
can recover quicker than the market expects as conditions
normalise.
Astra International is a good example, with interests in a wide
range of market leading auto-related businesses in Indonesia, including: 4-wheeler manufacturing
for Toyota; 2-wheeler manufacturing for Honda; auto dealerships and
auto financing. Having struggled with slower growth in recent
years, the shares de-rated even further given Covid–19 related
demand uncertainty. While the fundamentals of the Indonesian
economy are weak in the near-term, we believe that auto demand
should eventually grow as Gross Domestic Product (GDP) per capita
rises, while Astra should also benefit from new Toyota model
launches expected in 2021.
Another example of an under appreciated investment opportunity
is Yue Yuen Industrial, the world’s largest sports shoe
manufacturer, serving global brands such as Nike, Adidas and Asics.
. While retail sales in developed markets have recovered strongly,
Yue Yuen’s earnings may lag given the need to destock inventories,
but by early next year sales should be beginning to return to
normal. The share price, still around 30% below where it was in
January, reflects little hope of recovery. The fact that the
company has also spent the last couple of years focused on
relocating manufacturing capacity outside China, investing in automation and a new
enterprise resource planning (ERP) system to enable it to better
manage shorter lead times from customers, should aid its eventual
earnings recovery. We feel that a single digit normalised p/e
represents a significant discount to fair value.
We have also been able to find compelling prospects which are
less Covid-19 sensitive. For example, we have been adding to
ASUSTeK Computer, given that we expect the PC and motherboard
manufacturer to be able to continue to generate strong free cash
flow, supported by work from home trends and strong growth in
gaming. Furthermore, the value of its stakes in Pegatron, Advantech
and Asmedia plus net cash is more than ASUSTeK’s current market
capitalisation.
Finally, there have been a few small changes in our
financials exposure, where we retain a preference for groups with a
decent level of core profitability and structural growth potential,
such as Indian private banks and Chinese life insurers. Over the
period, we sold HDFC Bank and took advantage of share price
weakness to introduce Housing Development Finance preferred for its
improvement in competitive intensity, a low base in the property
cycle and medium-term growth potential from higher mortgage
penetration. In Korea, we sold Korean Reinsurance and introduced
Samsung Fire & Marine, an insurer that has been gradually
improving its underwriting business, which should lead to higher
profitability and earnings growth, in our view.
Where else do you see opportunity?
India remains the portfolio’s
biggest country overweight. Within Asia, it has probably had the worst pandemic
experience in terms of impact on its population’s health and the
sharp shock felt by the economy as a result of what was a largely
ineffectual lockdown strategy. The Indian government was swift to
abandon this strategy and has instead focussed attention on support
for the economy, which appears to be working. Domestically driven,
India’s economy is open for business again and with infection and
death rates falling there is less concern about having to protect a
Covid-19 ‘clean sheet’.
From a top-down perspective we remain positive for several
reasons: India is at the bottom of
its credit cycle, with Credit/GDP almost unchanged since the Global
Financial Crisis (GFC), providing scope for a pick-up in credit
growth that should support broader economic growth. We are also
encouraged by positive reform momentum. While some measures have
led to short-term economic pain, they should bear fruit within our
investment horizon, with the recent new labour code likely to help
incentivise investment and small business creation.
We have recently added exposure to Indian private banks, which
are still taking market share from the dominant, less well-run
state-owned banks. We are also comfortable owning other
economically sensitive stocks in India given the large structural growth
opportunities. This year we’ve seen some solid and well-managed
companies suffer from the lack of economic activity, which has
allowed us to take positions at historically attractive valuations.
For example, we had added to Larsen & Toubro (L&T) which is
not only a leading construction and infrastructure business with a
strong balance sheet – a characteristic we value in these uncertain
times – but is a beneficiary of a return to normality. Our analysis
suggests that L&T’s core engineering & construction
business is being valued below the level it reached during the
GFC.
Do you see any change in
US-China relations given the
US election result?
The relationship between the US and China is unlikely to improve dramatically due
to a change of President, with tensions likely to remain for the
foreseeable future. While we expect US policy under Joe Biden to be handled more diplomatically, and
less haphazardly, it is prudent to assume that Biden will be slow
to roll back the Trump administration’s measures targeting trade,
technology or financial markets.
Following the interim period-end, the former US President issued
an order imposing restrictions on US persons from investing in
certain named Chinese companies, with which the Company will
comply.
What is your outlook for further
out
The pandemic has been enormously disruptive, but Asia has fared relatively well compared
to other regions, with activity levels now back to pre Covid-19
levels in many sectors. The global economy is also gradually
getting back to normal, supported by a demand recovery in the US
and Europe. However, a
second/third wave of infections remains a concern, particularly
given the likelihood that renewed lockdowns will see a slowing in
economic momentum, a set-back for the global recovery.
The prospect of several successful vaccines being ready for
distribution in the new year has given markets a lift, particularly
the worst hit Covid-19 sensitive service sectors. Not only that,
but a scenario in which we have an effective vaccine sooner than
expected, sees improved earnings prospects for undervalued cyclical
stocks that we favour. However, there are still challenges ahead,
specifically concerning how vaccination programs might be
successfully rolled out on such a large scale.
In the near-term, the global liquidity environment is likely to
remain accommodative given the unprecedented scale of policy
support. Monetary and fiscal stimulus measures combined should
provide a tailwind to economic activity, with policymakers unlikely
to repeat the mistakes of the recent past in trying to withdraw
support too early. However, once normality has returned,
governments in developed markets will be forced to begin to chart a
course back to policy orthodoxy. This is likely to present a risk
to more highly rated stocks, but would benefit cyclicals.
In Asia, most countries went
into the crisis with relatively low levels of government debt,
which means they may not need to revert to austerity once the
crisis is over. Furthermore, economic growth in China is recovering without the authorities
having to rely on the sort of fiscal impulse manufactured in
developed economies.
While stock markets currently have policy and vaccine tailwinds
behind them, we feel it important not to exaggerate the likely
positive impact of economic normalisation. Markets have done very
well since they bottomed in March, with the MSCI Asia ex Japan
Index currently on a forward P/E of around 16x 2021 earnings, which
is toward the upper end of its historic range, albeit still
comparing favourably relative to developed markets. Current
consensus estimates for earnings growth in 2021 of around 24%
appear to reflect a degree of optimism in expectations. Given the
wide divergence in performance and valuation between sectors and
countries, opportunities are still available, particularly in
undervalued cyclical stocks. However, we feel the need to be
selective and maintain a balanced portfolio.
Ian
Hargreaves
Portfolio Manager
25 January 2021
Principal Risks and Uncertainties
The Board has carried out a robust assessment of the risks
facing the Company, including emerging risks. These include those
that would threaten its business model, future performance,
solvency and liquidity. The principal risks that follow are those
identified by the Board after consideration of mitigating
factors.
Category and Principal Risk
Description |
Mitigating Procedures and
Controls |
Strategic Risk |
|
Market and Political
Risk
The Company’s investments are traded on Asian and Australasian
stock markets as well as the UK. The principal risk for investors
in the Company is a significant fall and/or a prolonged period of
decline in these markets. This could be triggered by unfavourable
developments within the region or events outside it. The extreme
volatility experienced in March 2020 from the market reaction to
the Covid-19 virus exemplifies this risk, which has had a marked
effect on both the valuation of the Company’s portfolio of
investments and the discount to net asset value at which the
Company’s shares trade during the period.
Political developments can also create risks to the value of the
Company’s assets, such as US-China trade tensions and unrest in
Hong Kong, or impact on the GBP foreign exchange rate as a result
of Brexit. Political risk has always been a feature of
investing in stock markets and it is particularly so in Asia. Asia
encompasses a variety of political systems and there are many
examples of diplomatic skirmishes and military tensions, and
sometimes these resort to military engagement. Moreover, the
involvement in Asia of the United States and European countries can
reduce or raise tensions. |
The Company has a
diversified investment portfolio by country and by stock. Its
investment trust structure means no forced sales need to take place
and investments can be held over a longer term horizon. The Manager
evaluates and assesses political risk as part of the stock
selection and asset allocation policy which is monitored at every
Board meeting.
However, there are few ways to mitigate absolute market and
political risk because it is engendered by factors which are
outside the control of the Board and the Manager. These factors
include the general health of the world economy, interest rates,
inflation, government policies, industry conditions, political and
diplomatic events, changes to legislation, and changing investor
demand. Such factors may give rise to high levels of volatility in
the prices of investments held by the Company. |
Investment
Objectives
The Company’s investment objectives and structure are no longer
meeting investors’ demands. |
The Board receives regular reports
reviewing the Company’s investment performance against its stated
objectives and peer group, and reports from discussions with its
brokers and major shareholders. The Board also has a separate
annual strategy meeting. |
Wide
Discount
Lack of liquidity and lack of marketability of the Company’s shares
leading to stagnant share price and wide discount.
Persistently high discount may lead to buybacks of the Company’s
shares and resulting in the shrinkage of the Company. |
The Board receives regular reports
from both the Manager and the Company’s broker on the Company’s
share price performance, level of share price discount to NAV and
recent trading activity in the Company’s shares. It may seek to
reduce the volatility and absolute level of the share price
discount to NAV for shareholders through buying back shares within
the stated limit. The Board also receives regular reports on
marketing meetings with shareholders and prospective investors and
works to ensure that the Company’s investment proposition is
actively marketed through relevant messaging across many
distribution channels. |
Investment Management
Risk |
|
Performance
Portfolio Manager consistently underperforms the benchmark and/or
peer group over 3-5 years. |
The Board regularly compares the
Company’s NAV performance over both the short and long term to that
of the benchmark and peer group as well as reviewing the
portfolio’s performance against the benchmark (attribution) and
risk adjusted performance (volatility, beta, tracking error, Sharpe
ratio) of the Company and versus its peers. The Board also receives
reports on and reviews: the portfolio, transactions in the period,
active positions, gearing position and, if applicable,
hedging. |
Key Person
Dependency
The Portfolio Manager (Ian Hargreaves) ceases to be Portfolio
Manager or is incapacitated or otherwise unavailable. |
The Portfolio Manager works within,
and is Co-Head of Invesco’s Asian & Emerging Markets Equities
team with William Lam. Ian is supported by Fiona Yang and the wider
team. |
Currency Fluctuation
Risk
Exposure to currency fluctuation risk negatively impacts the
Company’s NAV. The movement of exchange rates may have an
unfavourable or favourable impact on returns as nearly all of the
Company’s assets are non-sterling denominated. |
With the exception of borrowings in
foreign currency, the Company does not normally hedge its currency
positions but may do so should the Portfolio Manager or the Board
deem this to be appropriate. Contracts are limited to currencies
and amounts commensurate with the asset exposure. The foreign
currency exposure of the Company is reviewed at Board
meetings. |
Third Party Service Providers
(TPPs) Risk |
|
Unsatisfactory
Performance of Third Party Service Providers
Failure by any service provider to carry out its obligations to the
Company in accordance with the terms of its appointment could have
a materially detrimental impact on the operations of the Company
and could affect the ability of the Company to successfully pursue
its investment policy and expose the Company to reputational risk.
Disruption to the accounting, payment systems or custody records
could prevent the accurate reporting and monitoring of the
Company’s financial position. |
Details of how the
Board monitors the services provided by the Manager and other third
party service providers, and the key elements designed to provide
effective internal control, are included in the internal control
and risk management section on page 19 of the Company’s 2020
annual financial report. |
Information
Technology Resilience and Security
The Company’s operational structure means that the main cyber risk
(information and physical security) arises at its third party
service providers. This cyber risk includes fraud, sabotage or
crime perpetrated against the Company or any of its TPPs. |
As well as regular
review of TPPs’ audited service organisation control reports by the
Audit Committee, the Board receives regular updates on the
Manager’s information and cyber security. The Board monitors TPPs’
business continuity plans and testing – including the TPPs and
Manager’s regular ‘live’ testing of workplace recovery
arrangements. |
Operational
Resilience
The Company’s operational capability relies upon the ability of its
TPPs to continue working throughout the disruption caused by a
major event such as the Covid-19 pandemic. |
The Manager’s business
continuity plans are reviewed on an ongoing basis and the Directors
are satisfied that the Manager has in place robust plans and
infrastructure to minimise the impact on its operations so that the
Company can continue to trade, meet regulatory obligations, report
and meet shareholder requirements.
As the impact of Covid-19 continues, the Manager has mandated work
from home arrangements and implemented split team working for those
whose work is deemed necessary to be carried out on business
premises. Any meetings are held virtually or via conference calls.
Other similar working arrangements are in place for the Company’s
third-party service providers. The Board receives regular update
reports from the Manager and TPPs on business continuity
processes. |
Twenty-five Largest Holdings
AT 31 OCTOBER
2020
Ordinary shares unless stated otherwise
† The industry group is based on
MSCI and Standard & Poor’s Global Industry Classification
Standard.
|
|
|
At Market |
|
|
|
|
Value |
% of |
Company |
Industry group† |
Country |
£’000 |
Portfolio |
TencentR |
Media & Entertainment |
China |
20,479 |
8.4 |
Alibaba – ADS |
Retailing |
China |
18,752 |
7.7 |
Samsung Electronics |
Technology Hardware &
Equipment |
South Korea |
17,202 |
7.1 |
Taiwan Semiconductor
Manufacturing |
Semiconductors & Semiconductor
Equipment |
Taiwan |
16,368 |
6.8 |
MediaTek |
Semiconductors & Semiconductor
Equipment |
Taiwan |
10,926 |
4.5 |
JD.com – ADR |
Retailing |
China |
9,027 |
3.7 |
ICICI – ADR |
Banks |
India |
7,200 |
3.0 |
AIA |
Insurance |
Hong Kong |
6,693 |
2.8 |
Hyundai Motor – preference
shares |
Automobiles & Components |
South Korea |
6,426 |
2.7 |
Housing Development Finance |
Banks |
India |
6,252 |
2.6 |
NetEase – ADR |
Media & Entertainment |
China |
5,793 |
2.4 |
ASUSTeK Computer |
Technology Hardware &
Equipment |
Taiwan |
5,687 |
2.3 |
Jiangsu Yanghe
BreweryA |
Food, Beverage & Tobacco |
China |
5,613 |
2.3 |
China MobileR |
Telecommunication Services |
China |
5,367 |
2.2 |
Mahindra & Mahindra |
Automobiles & Components |
India |
5,168 |
2.1 |
Delta Electronics |
Technology Hardware &
Equipment |
Taiwan |
4,915 |
2.0 |
CNOOCR |
Energy |
China |
4,890 |
2.0 |
China Pacific
InsuranceH |
Insurance |
China |
4,866 |
2.0 |
Hon Hai Precision Industry |
Technology Hardware &
Equipment |
Taiwan |
4,589 |
1.9 |
Larsen & Toubro |
Capital Goods |
India |
4,540 |
1.9 |
POSCO |
Materials |
South Korea |
4,169 |
1.7 |
Suofeiya Home
CollectionA |
Consumer Durables & Apparel |
China |
3,892 |
1.6 |
LG |
Capital Goods |
South Korea |
3,870 |
1.6 |
United Overseas Bank |
Banks |
Singapore |
3,725 |
1.6 |
Aurobindo Pharma |
Pharmaceuticals, Biotechnology &
Life Sciences |
India |
3,566 |
1.5 |
|
|
|
189,975 |
78.4 |
Other Investments (27) |
|
|
52,401 |
21.6 |
Total Holdings (52) |
|
|
242,376 |
100.0 |
ADR/ADS:
American Depositary Receipts/Shares – are certificates that
represent shares in the relevant stock and are issued by a US bank.
They are denominated and pay dividends in US dollars.
H:
H-Shares – shares issued by companies incorporated in the People’s
Republic of China (PRC) and listed
on the Hong Kong Stock Exchange.
R:
Red Chip Holdings – holdings in companies incorporated outside the
PRC, listed on the Hong Kong Stock Exchange, and controlled by PRC
entities by way of direct or indirect shareholding and/or
representation on the board.
A:
A-shares are shares that denominated in Renminbi and traded on the
Shanghai and Shenzhen stock exchanges.
Governance
Going Concern
The financial statements have been prepared on a going concern
basis.
The Directors took into consideration the uncertain economic
outlook in the wake of the Covid-19 pandemic and the operational
implications and consider the preparation of the financial
statements on a going concern basis to be the appropriate basis.
The Directors have a reasonable expectation that the Company
has adequate resources to continue in operational existence for the
foreseeable future, being taken as 12 months after signing the
balance sheet, for the same reasons as set out in the Viability
Statement in the Company’s 2020 annual financial report. In
considering this, the Directors took into account:
•
the diversified portfolio of readily realisable securities which
can be used to meet short-term funding commitments;
•
the ability of the Company to meet all of its liabilities and
ongoing expenses from its assets; and
•
revenue forecasts for the forthcoming year.
As discussed in Principal Risks and Uncertainties, the Company’s
operations and those of its core service providers have been
adapted to deal with the restrictions imposed in the UK as a result
of the Covid-19 pandemic.
Related Party Transactions
Under United Kingdom Generally Accepted Accounting Practice (UK
Accounting Standards and applicable law), the Company has
identified the Directors as related parties. No other related
parties have been identified. No transactions with related parties
have taken place which have materially affected the financial
position or the performance of the Company.
Directors’ Responsibility
Statement
in respect of the preparation of the half-yearly financial
report
The Directors are responsible for preparing the half-yearly
financial report using accounting policies consistent with
applicable law and UK Accounting Standards.
The Directors confirm that to the best of their knowledge:
— the condensed set of financial statements contained
within the half-yearly financial report have been prepared in
accordance with the FRC’s FRS 104 Interim Financial Reporting;
— the interim management report includes a fair review of
the information required by 4.2.7R and 4.2.8R of the FCA’s
Disclosure Guidance and Transparency Rules; and
— the interim management report includes a fair review of
the information required on related party transactions.
The half-yearly financial report has not been audited or
reviewed by the Company’s auditor.
Signed on behalf of the Board of Directors.
Neil
Rogan
Chairman
25 January 2021
Condensed Income Statement
FOR THE SIX MONTHS ENDED 31
OCTOBER
|
31
October 2020 |
31
October 2019 |
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
return |
return |
return |
return |
return |
return |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
Gains/(losses) on investments held
at fair value |
— |
42,366 |
42,366 |
— |
(12,353) |
(12,353) |
Gains on foreign exchange |
— |
163 |
163 |
— |
373 |
373 |
Income - note 2 |
3,753 |
— |
3,753 |
5,045 |
— |
5,045 |
Investment management fee - note
3 |
(210) |
(629) |
(839) |
(208) |
(624) |
(832) |
Other expenses |
(286) |
(3) |
(289) |
(305) |
(1) |
(306) |
Net return before finance costs and
taxation |
3,257 |
41,897 |
45,154 |
4,532 |
(12,605) |
(8,073) |
Finance costs – note 3 |
(13) |
(39) |
(52) |
(9) |
(28) |
(37) |
Return on ordinary activities before
taxation |
3,244 |
41,858 |
45,102 |
4,523 |
(12,633) |
(8,110) |
Tax on ordinary activities – note
4 |
(321) |
— |
(321) |
(442) |
— |
(442) |
Return on ordinary activities after
taxation for the financial period |
2,923 |
41,858 |
44,781 |
4,081 |
(12,633) |
(8,552) |
Return per ordinary share |
|
|
|
|
|
|
Basic |
4.37p |
62.61p |
66.98p |
5.83p |
(18.05)p |
(12.22)p |
Weighted average number of ordinary
shares in issue during the period |
|
|
66,853,287 |
|
|
69,980,943 |
The total column of this statement represents the Company’s
profit and loss account, prepared in accordance with UK Accounting
Standards. The return on ordinary activities after taxation is the
total comprehensive income and therefore no additional statement of
other comprehensive income is presented. The supplementary revenue
and capital columns are presented for information purposes in
accordance with the Statement of Recommended Practice issued by the
Association of Investment Companies. All items in the above
statement derive from continuing operations of the Company. No
operations were acquired or discontinued in the period.
Condensed Statement of Changes in
Equity
FOR THE SIX MONTHS ENDED 31
OCTOBER
|
|
Capital |
|
|
|
|
|
Share |
Redemption |
Special |
Capital |
Revenue |
|
|
Capital |
Reserve |
Reserve |
Reserve |
Reserve |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
For the six months ended 31 October
2020 |
|
|
|
|
|
|
At 30 April 2020 |
7,500 |
5,624 |
34,827 |
134,968 |
4,029 |
186,948 |
Return on ordinary activities |
— |
— |
— |
41,858 |
2,923 |
44,781 |
At 31 October 2020 |
7,500 |
5,624 |
34,827 |
176,826 |
6,952 |
231,729 |
For the six months ended 31 October
2019 |
|
|
|
|
|
|
At 30 April 2019 |
7,500 |
5,624 |
45,015 |
163,763 |
5,473 |
227,375 |
Return on ordinary activities |
— |
— |
— |
(12,633) |
4,081 |
(8,552) |
Dividends paid – note 5 |
— |
— |
— |
— |
(2,028) |
(2,028) |
Shares bought back and held in
treasury |
— |
— |
(2,752) |
— |
— |
(2,752) |
At 31 October 2019 |
7,500 |
5,624 |
42,263 |
151,130 |
7,526 |
214,043 |
Condensed Balance Sheet
Registered Number 3011768
|
At |
At |
|
31 October |
30 April |
|
2020 |
2020 |
|
£’000 |
£’000 |
Fixed assets |
|
|
Investments held at fair value
through profit or loss – note 7 |
242,376 |
195,915 |
Current assets |
|
|
Tax recoverable |
228 |
145 |
VAT recoverable |
23 |
24 |
Prepayments and accrued
income |
164 |
272 |
Cash and cash
equivalents |
316 |
1,623 |
|
731 |
2,064 |
Creditors: amounts falling due
within one year |
|
|
Bank overdraft |
(318) |
- |
Bank facility |
(8,839) |
(10,354) |
Amounts due to
brokers |
(1,579) |
(112) |
Accruals |
(642) |
(565) |
|
(11,378) |
(11,031) |
Net current liabilities |
(10,647) |
(8,967) |
Net assets |
231,729 |
186,948 |
|
|
|
Capital and reserves |
|
|
Share capital |
7,500 |
7,500 |
Other reserves: |
|
|
Capital redemption
reserve |
5,624 |
5,624 |
Special reserve |
34,827 |
34,827 |
Capital reserve |
176,826 |
134,968 |
Revenue reserve |
6,952 |
4,029 |
Total shareholders’ funds |
231,729 |
186,948 |
Net asset value per ordinary
share |
|
|
Basic |
346.62p |
279.64p |
Number of 10p ordinary shares in
issue at the period end – note 6 |
66,853,287 |
66,853,287 |
Notes to the Financial Condensed
Statements
1. Accounting
Policies
The condensed financial statements have been prepared in
accordance with applicable United Kingdom Accounting Standards and
applicable law (UK Generally Accepted Accounting Practice),
including FRS 102 The Financial Reporting Standard applicable in
the UK and Republic of Ireland,
FRS 104 Interim Financial Reporting and the Statement of
Recommended Practice Financial Statements of Investment Trust
Companies and Venture Capital Trusts, issued by the Association of
Investment Companies in October 2019.
The financial statements are issued on a going concern basis.
The accounting policies applied to these condensed financial
statements are consistent with those applied in the financial
statements for the year ended 30 April
2020.
2. Income
|
Six months
to |
Six months
to |
|
31 October |
31
October |
|
2020 |
2019 |
|
£’000 |
£’000 |
Income from investments |
|
|
Overseas dividends –
ordinary |
3,605 |
4,931 |
– special |
148 |
107 |
Deposit interest |
— |
7 |
Total income |
3,753 |
5,045 |
No special dividends have been recognised in capital during the
period (31 October 2019: £nil).
3. Management
Fee and Finance costs
Investment management fee and finance costs on any borrowings
are charged 75% to capital and 25% to revenue. A management fee is
payable quarterly in arrears and is equal to 0.75% per annum of the
value of the Company’s total assets less current liabilities
(including any short term borrowings) under management at the end
of the relevant quarter and 0.65% per annum for any net assets over
£250 million.
4. Taxation
and Investment Trust Status
It is the intention of the Directors to conduct the affairs of
the Company so that it satisfies the conditions for approval as an
investment trust company. As such, no tax liability arises on
capital gains. The tax charge represents withholding tax suffered
on overseas income.
5. Dividends
paid on Ordinary Shares
As noted in the Chairman’s Statement, an interim dividend of
6.70p per share was paid on 26 November
2020 to shareholders on the register on 6 November 2020. Shares were marked ex-dividend
on 5 November 2020.
In accordance with accounting standards, dividends payable after
the period end have not been recognised as a liability.
6. Share
Capital, including Movements
(a) Ordinary Shares of
10p each
|
Six months
to |
Year to |
|
31 October |
30
April |
|
2020 |
2020 |
Number of ordinary shares: |
|
|
Brought forward |
66,853,287 |
70,469,475 |
Shares bought back into
treasury |
— |
(3,616,188) |
Carried forward |
66,853,287 |
66,853,287 |
(b) Treasury
Shares
|
Six months
to |
Year to |
|
31 October |
30
April |
|
2020 |
2020 |
Number of treasury shares: |
|
|
Brought forward |
8,146,594 |
4,530,406 |
Shares bought back into
treasury |
— |
3,616,188 |
Carried forward |
8,146,594 |
8,146,594 |
Ordinary shares in issue (including
treasury) |
74,999,881 |
74,999,881 |
Subsequent to the period end nil shares were bought back.
7.
Classification Under Fair Value Hierarchy
FRS 102 sets out three fair value levels. These are:
Level 1 – The unadjusted quoted price in an active market for
identical assets that the entity can access at the measurement
date.
Level 2 – Inputs other than quoted prices included within Level
1 that are observable (i.e. developed using market data) for the
asset or liability, either directly or indirectly.
Level 3 – Inputs are unobservable (i.e. for which market data is
unavailable) for the asset or liability.
The fair value hierarchy analysis for investments held at fair
value at the period end is as follows:
|
31 October |
30
April |
|
2020 |
2020 |
|
£’000 |
£’000 |
Financial assets designated at fair
value |
|
|
Level 1 |
242,248 |
195,054 |
Level 2 |
— |
738 |
Level 3 |
128 |
123 |
Total for financial assets |
242,376 |
195,915 |
The Level 3 investment consists of one holding in Lime Co.
(30 April 2020: Lime Co.).
8. Status of
Half-Yearly Financial Report
The financial information contained in this half-yearly report
does not constitute statutory accounts as defined in section 434 of
the Companies Act 2006. The financial information for the half
years ended 31 October 2020 and
31 October 2019 has not been audited.
The figures and financial information for the year ended
30 April 2020 are extracted and
abridged from the latest audited accounts and do not constitute the
statutory accounts for that year. Those accounts have been
delivered to the Registrar of Companies and included the Report of
the Independent Auditor, which was unqualified and did not include
a statement under section 498 of the Companies Act 2006.
By order of the Board
Invesco Asset Management Limited
Company Secretary
25 January 2021
Glossary of Terms and Alternative
Performance Measures
Alternative Performance Measure
(APM)
An APM is a measure of performance or financial position that is
not defined in applicable accounting standards and cannot be
directly derived from the financial statements. The calculations
shown in the corresponding tables are for the six months ended
31 October 2020, the six months ended
31 October 2019 and the year ended
30 April 2020. The APMs listed here
are widely used in reporting within the investment company sector
and consequently aid comparability.
Benchmark (or Benchmark Index)
A standard against which performance can be measured, usually an
index that averages the performance of companies in a stock market
or a segment of the market. The benchmark used in these accounts is
the MSCI AC Asia ex Japan Index. This benchmark index does not
include Australia and New Zealand.
Discount/Premium (APM)
Discount is a measure of the amount by which the mid-market
price of an investment company share is lower than the underlying
net asset value (NAV) of that share. Conversely, Premium is a
measure of the amount by which the mid-market price of an
investment company share is higher than the underlying net asset
value of that share. In this interim financial report the discount
is expressed as a percentage of the net asset value per share and
is calculated according to the formula set out below. If the shares
are trading at a premium the result of the below calculation will
be positive and if they are trading at a discount it will be
negative.
|
|
|
At 31
October |
At 30 April |
|
Page |
|
2020 |
2020 |
Share price |
1 |
a |
304.50p |
254.00p |
Net asset value per share – cum
income |
1 |
b |
346.62p |
279.64p |
Discount – cum income |
|
c = (a-b)/b |
(12.2)% |
(9.2)% |
The average discount for the period/year is the arithmetic
average, over a period/year, of the daily discount calculated on
the same basis as shown above.
Gearing
The gearing percentage reflects the amount of borrowings that a
company has invested. This figure indicates the extra amount by
which net assets, or shareholders’ funds, would move if the value
of a company’s investments were to rise or fall. A positive
percentage indicates the extent to which net assets are geared; a
nil gearing percentage, or ‘nil’, shows a company is ungeared. A
negative percentage indicates that a company is not fully invested
and is holding net cash as described below.
There are several methods of calculating gearing and the
following has been used in this report:
Gross Gearing (APM)
This reflects the amount of gross borrowings in use by a company
and takes no account of any cash balances. It is based on gross
borrowings as a percentage of net assets.
|
|
|
At 31
October |
At 30 April |
|
|
|
2020 |
2020 |
|
Page |
|
£’000 |
£’000 |
Bank overdraft |
13 |
|
318 |
— |
Bank facility |
13 |
|
8,839 |
10,354 |
Gross borrowings |
|
a |
9,157 |
10,354 |
Net asset value |
13 |
b |
231,729 |
186,948 |
Gross gearing |
|
c = a/b |
4.0% |
5.5% |
Net Gearing or Net Cash (APM)
Net gearing reflects the amount of net borrowings invested, i.e.
borrowings less cash and cash equivalents (incl. investments in
money market funds). It is based on net borrowings as a percentage
of net assets. Net cash reflects the net exposure to cash and cash
equivalents, as a percentage of net assets, after any offset
against total borrowings.
|
|
|
At 31
October |
At 30 April |
|
|
|
2020 |
2020 |
|
Page |
|
£’000 |
£’000 |
Bank overdraft |
13 |
|
318 |
— |
Bank facility |
13 |
|
8,839 |
10,354 |
Less: cash and cash equivalents |
13 |
|
(316) |
(1,623) |
Less: Invesco Liquidity Fund – US
Dollar (money market fund) |
|
|
— |
(738) |
Net borrowings |
|
a |
8,841 |
7,993 |
Net asset value |
13 |
b |
231,729 |
186,948 |
Net gearing |
|
c = a/b |
3.8% |
4.3% |
Net Asset Value (NAV)
Also described as shareholders’ funds the NAV is the value of
total assets less liabilities. Liabilities for this purpose include
current and long-term liabilities. The NAV per ordinary share is
calculated by dividing the net assets by the number of ordinary
shares in issue. For accounting purposes assets are valued at fair
(usually market) value and liabilities are valued at par (their
repayment – often nominal – value).
Total Return
Total return is the theoretical return to shareholders that
measures the combined effect of any dividends paid, together with
the rise or fall in the share price or NAV. In this half-yearly
financial report these return figures have been sourced from
Refinitiv who calculate returns on an industry comparative
basis.
Net Asset Value Total Return (APM)
Total return on net asset value per share, assuming dividends
paid by the Company were reinvested into the shares of the Company
at the NAV per share at the time the shares were quoted
ex-dividend.
Share Price Total Return (APM)
Total return to shareholders, on a mid-market price basis,
assuming all dividends received were reinvested, without
transaction costs, into the shares of the Company at the time the
shares were quoted ex-dividend.
|
|
|
Net Asset |
Share |
Six Months Ended 31 October
2020 |
Page |
|
Value |
Price |
As at 31 October 2020 |
1 |
|
346.62p |
304.50p |
As at 30 April 2020 |
1 |
|
279.64p |
254.00p |
Change in period |
|
a |
24.0% |
19.9% |
Impact of dividend
reinvestments(1) |
|
b |
0.0% |
0.0% |
Total return for the
period |
|
c = a+b |
24.0% |
19.9% |
|
|
|
Net Asset |
Share |
Six Months Ended 31 October
2019 |
|
|
Value |
Price |
As at 31 October 2019 |
|
|
307.98p |
268.00p |
As at 30 April 2019 |
|
|
322.66p |
294.00p |
Change in period |
|
a |
–4.5% |
–8.8% |
Impact of dividend
reinvestments(1) |
|
b |
0.8% |
2.1% |
Total return for the
period |
|
c = a+b |
–3.7% |
–6.7% |
(1) No dividends have been paid
during six months to 31 October 2020
(31 October 2019: 2.90p reinvested at
the NAV or share price on the ex-dividend date). NAV or share price
falls subsequent to the reinvestment date consequently further
reduce the returns, vice versa if NAV or share price rises.
Benchmark
Total return on the benchmark is on a mid-market value basis,
assuming all dividends (net of withholding tax) received were
reinvested, without transaction costs, into the shares of the
underlying companies at the time the shares were quoted
ex-dividend.