Schroder Asian Income Monthly Fund Update

Transcription

1 Monthly Fund Update Fund Performance As at 30 April 2016, in SGD 1 month Year to date 1 Year 3 Years (p.a.) Since launch* (p.a.) Fund (Bid-Bid) (%) Fund (Offer-Bid) (%) Source: MorningStar, SGD, net dividends reinvested. The fund is benchmark unconstrained. *Launch date is 24 October Market Overview Asia ex Japan equities delivered slightly negative returns in April as the rebound in global stock prices during March was short-lived. Investor caution surrounding China and a pullback in the oil price weighed on returns. Chinese equities finished marginally down as data showed that the world s second-largest economy had grown 6.7% year-on-year in the first quarter, its lowest quarterly figure in seven years. However, there was cause for some optimism given a strong rebound in exports and better data in manufacturing and services. Hong Kong stocks finished slightly up while over the strait in Taiwan, the market declined as technology firms led losses. In Korea, stocks fell slightly as foreign investors took profits following the market s recent bounce. The MSCI AC Asia Pacific ex Japan Index fell slightly by -0.1% in April in USD terms. Asian USD credit delivered positive returns as the minor increase in Treasury yields was offset by credit spread tightening. High yield credits outperformed investment grade bonds. Indonesia sovereigns and quasi-sovereigns were among the best performers amid more positive macro news. Commodity and resources names also saw strong buying as energy prices recovered. Asian local currency bonds finished the month marginally positive, with Indonesia again being the best performer while the China names were weighed upon by rising onshore defaults. Over the month, the Singapore dollar appreciated by 0.3% against the US dollar. Performance Commentary The fund gained 0.9% in April bringing the year to date return to 1.9%. The equity portfolio delivered positive returns of 1.0% outperforming the broader market which fell slightly over the month. Our positive return was mainly due to the strong performance of our REITs holdings in Singapore and telecoms in Hong Kong, which saw demand in the low yield environment. In Thailand, the telecom name came under pressure as the company expressed interest in bidding for the band spectrum at a price which was considered to be overvalued by the market. The fixed income portfolio also delivered positive returns and performed in line with the broad market. Our Indonesia government bonds rallied on the expectation of further monetary easing, together with commodities names in Indonesia due to the recovery of commodity prices. Our financial and property names in China also performed well due to the stabilisation of Chinese economic indicators. The global 1

2 allocation also rose and slightly outperformed the Asian markets. In risk management, currency hedges added value, in particular on the AUD which depreciated by 1% against SGD. The duration hedges and equity hedges ended the month flat. Asset Allocation Strategy and Outlook In April we slightly increased the physical allocation to Asian equities to 58%, while maintained the allocation to Asian fixed income and global assets at 31% and 7% respectively. Over the month, the put option on Taiwan equities expired, and we replaced it with a put option on Australia equities. We have also rolled forward the put option on Hong Kong equities. Overall, we have increased the protection on equities and the net equity exposure remained at 55% in April. In currencies, we have reduced our hedge on USD on the expectation of the return of strong USD environment; while we have increased the hedge on AUD by 1% as more monetary easing is expected to boost the economy. Elsewhere, there was no change to the Fund s currency hedging strategy keeping our hedges on the CNH, THB and TWD in the portfolio. The overall exposure to USD & HKD was increased to 26% and the exposure to SGD was reduced to 58%. The combination of weaker hiring but better wage growth ties in with a maturing economic cycle in the US. The Federal Reserve left monetary policy on hold and we will need to see across-the-board strength in activity for the authorities to move as soon as June. The Bank of Japan surprised the market with no easing decision, which seems to imply that the policy committee feels more time is needed to judge the impact of the most recent changes before extending policy further. In China, trade data in April failed to meet expectations after a strong rebound in March, and we expect more uncertainty down the road as the economy rebalances. Our defensive income strategy is well positioned in a world where most central banks commit to the ultra-accommodative policies which suppress the yields to the lowest levels. Many Asian stock prices are still at attractive levels although risk management, security selection and nimble asset allocation remain key to navigate this environment when investing for income and growth in Asian markets. Equity Strategy and Outlook Over this month, we added our exposure to a bank name in Hong Kong with sustainable and attractive yield, which has executed effective cost cutting measures. We reduced the telecom name in Thailand as its dividend may come under pressure after the aggressive bid for mobile spectrum, and rotated into a telecom holding in Indonesia due to its benign competition, strong balance sheet and free cash flows. We continued reducing a Singapore telecommunication name due to lower earnings growth guidance and competition from internet media service delivery, which will put pressure on the dividend payment. We also continued trimming our holdings in a Thailand bank on the concern of rising Non-performing Loans (NPLs). Overall growth outlook in Asian economies remains sluggish due to weak global trade, slowing credit growth, high debt levels and emergence of asset quality cycles in some countries. We expect that revenue growth is likely to be quite muted over the next months. There is also likely to be profitability pressure during such sluggish end-demand conditions. Therefore, it is important for investors to focus on high quality companies with strong balance sheets and solid fundamentals which can offer more sustainable dividend yields. Fixed Income Strategy and Outlook In April, we bought a Macau gaming name due to its stabilising earnings, limited capital expenditure and extra earnings from a new project opening. We also bought a Chinese oil & gas name with strong government support and ready to benefit from the stabilization of energy prices. We continued buying the short-term Chinese property bonds from strong players on improved valuations. The recent measures to cool down the property markets in tier-one cities are widely expected, and the scale is likely to be relatively small given the sluggish economy. On the other hand, we took profit on a Chinese bank on rich valuation and rotated into a Chinese insurance name, which has solid solvency ratio, and benefits from the improved industry environment and regulatory requirements.

3 The market remains concerned about Chinese onshore corporate defaults which started from a very low base but we expect to see more rating downgrades in China corporates. We maintain a cautious approach to invest in Asian credits. Within the materials or commodities sectors, we prefer state-owned-enterprises (SOEs), which are strategic assets supported by the governments and less likely to fail, and we also prefer investment grade non-soe names which have attractive yields with sound fundamentals. We have kept the duration hedge in the portfolio and the portfolio duration was slightly reduced to 1.4 years. Fund Positioning As at 30 April 2016, net of hedges Asset Allocation Breakdown Other Asset Classes, 6.7% Cash, 7.1% Fixed Income, 30.8% Net Equity, 55.4% Portfolio Statistics Asian equities Asian bonds Credit rating (%) No. of Holdings Investment Grade 61.0 Gross Yield 6.0% 4.4% BB 13.6 Average Credit Rating NA BBB Non Rated 19.7 Average Duration NA 4.5 yrs Below BB 5.6 Geographical Breakdown Sector Breakdown As at 30 April 2016 Equities Fixed Income Total Equities Fixed Income Total Hong Kong Financial Singapore Communications Australia Utilities China Energy India Government Thailand Industrial Indonesia Basic Materials Korea Consumer, Cyclical Taiwan Consumer, Non-cyclical Japan Diversified

4 Others Technology Global Global Cash & Cash Equivalents Cash & Cash Equivalents Hedges Hedges Total Total Top 5 Holdings Equities Fixed Income Securities % Securities % HK Electric Investments & HKE 2.3 India Government Bond 7.16% 20/05/ LINK REIT 2.0 Telstra Corp 2.0 Ascendas Real Estate Investment Trust 1.9 Indonesian Government Bond 9.0% 15/03/2029 Perusahaan Gas Negara Persero 5.125% 16/05/2024 China Life Insurance Company 4% 03/07/2075 Spark New Zealand 1.8 Woori Bank Co Ltd 4.75% 30/04/2024 Source: Bloomberg, Schroders For illustrative purpose only. It does not represent any recommendation to invest in or divest of the above mentioned securities. Dividend payout calendar SGD Class Nov Nov Dec % Dec Dec Jan % Jan Jan Feb % Feb Feb Mar % Mar Mar Apr % Apr Apr May % Dividend payout calendar AUD-Hedged Class Nov Nov Dec % Dec Dec Jan % Jan Jan Feb % Feb Feb Mar % Mar Mar Apr % Apr Apr May % Dividend payout calendar USD-Hedged Class Nov Nov Dec % Dec Dec Jan % Jan Jan Feb % Feb Feb Mar %

5 Mar Mar Apr % Apr Apr May % * Distributions of will be declared on a monthly basis. The distributions are not guaranteed and might be changed at the Manager s discretion in accordance with the Trust Deed. Ordinarily, they will be reviewed annually. In the event of income and realised gains being less than the intended distribution, distributions will be made from capital, subject to trustee approval. Investors should be aware that the distributions may exceed the income and realised gains of the each fund at times and lead to a reduction of the amount originally invested, depending on the date of initial investment. Important Information This is prepared by Schroders for information and general circulation only and the opinions expressed are subject to change without notice. It does not constitute an offer or solicitation to deal in units of any Schroders fund (the Fund ) and does not have regard to the specific investment objectives, financial situation or the particular needs of any specific person who may receive this. Investors may wish to seek advice from a financial adviser before purchasing units of any Fund. In the event that the investor chooses not to seek advice from a financial adviser, he should consider whether the Fund in question is suitable for him. Past performance of the Fund or the manager, and any economic and market trends or forecast, are not necessarily indicative of the future or likely performance of the Fund or the manager. The value of units in the Fund, and the income accruing to the units, if any, from the Fund, may fall as well as rise. Investors should read the prospectus, available from Schroder Investment Management (Singapore) Ltd or its distributors, before deciding to subscribe for or purchase units in any Fund. Funds may carry a sales charge of up to 5%. Schroder Investment Management (Singapore) Ltd 138 Market Street #23-01 CapitaGreen Singapore Telephone: Fax: Registration No.: H