Schroder Oriental Income Fund

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1 1 Fund Ltd is a client of Kepler Trust Intelligence. Material produced by Kepler Trust Intelligence covering should be considered a marketing communication, and is not independent research. Please see the important information at the bottom of the page. Fund Summary Fund has a diversified 62m portfolio of Asian equities with a book of around 8 stocks held across a diverse range of countries and sectors across the Asia Pacific region, including Australia and a small but significant weighting in Japan, and a bias toward higher quality more mature companies. Managed by industry veteran Matthew Dobbs, who has more than 3 years experience as a manager in the region, the trust aims for solid total returns via a portfolio of equities offering attractive yields. across the Asia Pacific region, including Australia and a small but significant weighting in Japan, with a bias toward more mature companies. Schroders has a significant footprint in Asia and Matthew has more than thirty years experience as a manager in the region. As such he places a high degree of emphasis on face to face meetings and the quality of the management in the companies he invests in avoiding companies where management do not live up to his standards, or where he believes they might be influenced by something other than shareholder returns (like trying to please the government, for example). Over the past 1 years (to the end of February 18) Matthew has delivered returns of 24 against a return of 166 from the index. In discrete terms the trust has demonstrated fairly consistent outperformance of peers and the index in each calendar year when the index has been in negative territory since the Great Financial Crisis (in which it marginally underperformed the index). In positive years, the trust has performed well too, with 217 being the only year in which Matthew has delivered significant underperformance. At the same time, the trust has paid a covered, growing dividend for the last 11 years. The trust currently yields 3.7, putting it among the highest earners in the sector and on a comparable footing with UK equity income focused trusts in yield terms. Having paid covered dividends in every year since launch, the board have a sizeable revenue reserve to draw on should portfolio earnings disappoint. The trust s discount volatility has been relatively low. The trust has seen its shares trade between a premium of 4.8 and a discount of around over the last five years, generally resting at neither extreme for long. More recently the shares have trended around a premium of c. 1.. Matthew pursues a conservative approach which, combined with the trust s focus on income paying stocks, means it may be left behind during strong growth rallies as it has been in the last year or so but over the longer term the trust has outperformed the index by a considerable margin. The majority of the trust s assets are in larger companies, but, reflecting the manager s small cap expertise (he also runs several specialist small cap portfolios), the trust has a significant weighting in mid-caps (18.4) compared to the category average (9.1) according to data from Morningstar. Evidence of a solid dividend is a key determinant for a stock s inclusion, but there is a spectrum within the portfolio; Matthew will invest in companies that don t pay a dividend where he sees a special situation as was the case with Standard Chartered, which has started to pay a dividend again since he bought it and among the rest of the holdings there are companies which pay a small but growing dividend which sit alongside more typical solid dividend payers at a more mature stage in their lifecycle. Matthew prefers companies that pay a lower beta dividend which can show evidence that they have paid steady or steadily growing dividends over various cycles and tends to ignore growthier companies which, while they may pay attractive dividends now, have less stable track records and are more likely to disappoint. He dislikes companies which have high cost Consumer staples Utilities Financials Telecommunication services Schroder AsiaPacific Fund Sector Exposure Fixed income Consumer discretionary Portfolio Fund runs with a book of around 8 stocks held across a diverse range of countries and sectors Materials Healthcare Energy Industrials Real estate Source: Schroders (as at ) Information technology

2 2 conversion like airlines and those which cannot control the price of the product they are selling like commodities firms, but in sectoral terms asset allocation is generally the result of stock selection, with obvious weightings toward higher yielding sectors like financials and real estate. The trust is managed with a benchmark agnostic approach, using the MSCI AC Pacific ex Japan index as a point of reference, and has a major overweight (+17.) toward Hong Kong and smaller overweights toward Singapore (+6), Thailand (4.9) and Japan (+3.6). In absolute terms, Hong Kong, Australia, Taiwan, China and Indonesia are the trust s largest holdings. Korea China Regional Exposure Hong Kong the MSCI Asia Ex Japan index by approximately 9 over the year. The board stressed in its most recent annual report that the stocks which drove last year s index returns were the lowest yielding quintile well outside of the trust s investment universe. As such, the strong performance of names like Alibaba and Tencent have significantly impacted the fund s relative performance. On the other hand, in 218 so far, we have seen these high growth tech names come under some pressure. Over the longer-term the trust s superior performance during less frothy markets has meant that long term relative performance numbers are better. The past 1 years (to the end of February), have seen the trust significantly outperform the index, delivering returns of 24 against a return of 166 from the index. 3 : NAV Total Return vs index 1 years to 28/2/218 Malaysia 2 Indonesia Philippines Singapore 1 Australia Thailand These positions reflect the manager s preference for dividend focused companies, strong corporate governance, and his dislike of companies which are unable to commit fully to shareholder returns; his enthusiasm for Chinese companies tempered in particular because they tend to be beholden not just to their shareholders but also to the Communist Party. Japan is something of a special case. The trust can have up to 1 of its portfolio in Japan, despite sitting in the AIC Asia Pacific ex Japan sector. Matthew points to the very liquid balance sheets many Japanese companies are sitting on, and the growing domestic pressure that they are under to pay dividends. In the manager s words: If Japan wanted to join the party on dividends, it could. Gearing The trust has permission to gear up to the tune of 2 of net assets, but in keeping with the manager s conservative approach the level of gearing has remained relatively low in recent times, and the average over the past years has been 4.8. As at the end of February 218 gearing sat at 6. Returns India New Zealand Source: Schroders (as at ) Japan Taiwan 217 brought exceptional returns for Asian equities, with the index delivering approximately 2 returns but the trust lagged (NAV) Morningstar IT AsiaPacific ExJapn (NAV) (Price) MSCI AC Asia Ex Japan (NAV) In discrete terms, as the chart below shows, the trust has demonstrated fairly consistent outperformance, achieving better returns that its peers and the index in each calendar year when the index has been in negative territory since the Great Financial Crisis (in which it marginally underperformed the index). In positive years, the trust has outperformed well too, with 217 being the only year in which Matthew delivered significant underperformance. 1 - : Discrete Performance (Total) Morningstar IT AsiaPacific ExJapN years (Market) MSCI AC Pacific Ex Japan Fund is one of three trusts in the Morningstar IT Asia Pacific ex Japan sector which offers a decent yield (ignoring those paying income from capital), sitting

3 3 alongside Aberdeen Asian Income and Henderson Far East Income. At the time of writing the trust offers the second highest yield (3.7) amongst these funds both of which it has outperformed over three and five years, tending to display a lower beta to the index at the same time. PEER GROUP GROUP/INVESTMENT ANNUAL REPORT ONGOING CHARGE 12 MO YIELD DISCOUNT (CURRENT) London based Matthew Dobbs is head of global small cap equities at Schroders, and the manager of Asian specialist portfolios including Schroder Asia Pacific a growth focused investment trust and Schroder Asian Alpha Plus, a multi asset style OEIC which invests in a much broader range of assets than the two closed end vehicles. 1/3/217 1/3/217 1/3/21 28/2/218 1/3/213 28/2/218 Henderson Far East Income Aberdeen Asian Income Fund Ltd Dividend The trust was launched in 2 and has grown its dividend in every year since 27. The trust currently yields 3.7, putting it among the highest earners in the sector and on a comparable footing UK equity income focused trusts. The company has paid covered dividends in every year since launch, meaning that the board have a sizeable revenue reserve to draw on should portfolio earnings disappoint. At the company s last report and accounts (31st August 217) the trust had revenue reserves amounting to.73x the full year dividend : Dividend & Revenue Financial Years Matthew has worked for Schroders for his entire career and spent part of that time running the company s ASEAN business from an office in Singapore. He runs the fund on an entirely bottom up basis, paying little attention to macro or economic factors except where it is necessary to avoid over concentration in country or currency. He relies instead on scrutiny of company balance sheets, with recommendations coming in from his team of analysts. Discount The trust s discount volatility has been relatively low, as the graph below shows. The trust has seen its shares trade between a premium of 4.8 and a discount of around over the last five years, generally resting at neither extreme for long. More recently the shares have trended around a premium of c. 1.. pence per share : Discount/premium 1/3/213-28/2/ Source: Schroders Management EPS Dividend Schroders has a large network of over 4, personnel across the world, including 39 Asian ex-japan analysts supporting the trust with on average 1 years of experience each. Stock selection is at the heart of the investment approach and the locally placed analysts offer a vital source of unique ideas for the lead-manager At the most recent AGM in December 217, the board renewed the ability to buy back shares. At the time of writing the board

4 4 holds no shares in treasury, and the month of February saw 67, new shares issued. This has been a regular occurrence throughout 218, in an attempt to increase size, liquidity, and to control the price. Charges Currently, the trust is charged a basic management fee of.7 of net assets, which is then reduced to.7 on net assets above 2 million. With net assets currently at 62m, the majority of the assets of the trust is attracting the lower fee band. In addition, the manager is due a performance fee of 1 of the excess total returns over a 7 compounded hurdle, which resets each year from the previous highest point. The performance fee is capped in any one year at.7 per annum. The trust has an ongoing charge of.8 (down from.89 in 216), making it the second cheapest in the sector (excluding performance fee).

5 Fund Ltd is a client of Kepler Trust Intelligence. Material produced by Kepler Trust Intelligence covering should be considered a marketing communication, and is not independent research. Please see the important information at the bottom of the page. Important Information Kepler Partners is not authorised to make recommendations to Retail Clients. This report is based on factual information only, and is solely for information purposes only and any views contained in it must not be construed as investment or tax advice or a recommendation to buy, sell or take any action in relation to any investment. This report has been issued by Kepler Partners LLP solely for information purposes only and the views contained in it must not be construed as investment or tax advice or a recommendation to buy, sell or take any action in relation to any investment. If you are unclear about any of the information on this website or its suitability for you, please contact your financial or tax adviser, or an independent financial or tax adviser before making any investment or financial decisions. The information provided on this website is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject Kepler Partners LLP to any registration requirement within such jurisdiction or country. Persons who access this information are required to inform themselves and to comply with any such restrictions. In particular, this website is exclusively for non-us Persons. The information in this website is not for distribution to and does not constitute an offer to sell or the solicitation of any offer to buy any securities in the United States of America to or for the benefit of US Persons. This is a marketing document, should be considered non-independent research and is subject to the rules in COBS 12.3 relating to such research. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research. No representation or warranty, express or implied, is given by any person as to the accuracy or completeness of the information and no responsibility or liability is accepted for the accuracy or sufficiency of any of the information, for any errors, omissions or misstatements, negligent or otherwise. Any views and opinions, whilst given in good faith, are subject to change without notice. This is not an official confirmation of terms and is not to be taken as advice to take any action in relation to any investment mentioned herein. Any prices or quotations contained herein are indicative only. Kepler Partners LLP (including its partners, employees and representatives) or a connected person may have positions in or options on the securities detailed in this report, and may buy, sell or offer to purchase or sell such securities from time to time, but will at all times be subject to restrictions imposed by the firm s internal rules. A copy of the firm s conflict of interest policy is available on request. Past performance is not necessarily a guide to the future. The value of investments can fall as well as rise and you may get back less than you invested when you decide to sell your investments. It is strongly recommended that Independent financial advice should be taken before entering into any financial transaction. PLEASE SEE ALSO OUR TERMS AND CONDITIONS Kepler Partners LLP is a limited liability partnership registered in England and Wales at 9/1 Savile Row, London W1S 3PF with registered number OC Kepler Partners LLP is authorised and regulated by the Financial Conduct Authority.