Invesco Asia Trust (IAT) targets long-term capital growth from a portfolio of Asian (ex-Japan) and Australasian equities. It is co-managed by Invesco Perpetual’s Stuart Parks and Ian Hargreaves, who actively manage the portfolio with a view to absolute returns, using a blend of fundamental bottom-up and top-down analysis. Given this active approach, short-term divergences from the benchmark index, the MSCI AC Asia Pacific ex-Japan, are inevitable, but IAT has beaten its benchmark by over 11% under the managers since 2004, despite a weaker performance in the last year.
Investment Strategy: Quality At A Discount
IAT invests across the Asian region and focuses on the larger, more liquid markets. IAT is differentiated from its Asian peer group in that its remit includes Australasia, which broadens its investment opportunities. The managers look for stocks that are trading at a significant discount to their estimate of fair value, in a process that gives emphasis to management quality, good corporate governance, balance sheet strength and cash generation. The investment process aims to create a diversified portfolio of 60-90 stocks, actively chosen for positive returns.
Political And Economic Outlook: Inflation Moderating
For much of the past decade, investors have been attracted to the structural growth opportunity provided by Asia. Over the last couple of years, authorities across the region have been focused on dampening the inflation that arose in the aftermath of China’s 2009, financial crisis-inspired, stimulus package. Reinforced by the protracted eurozone crisis and mixed signals from the US economy, regional growth has slowed, although still compares favourably with that generated by developed markets. There are signs that inflation is now moderating, which should provide room for lessrestrictive monetary and fiscal policy. The managers believe that the Chinese economy is set to stabilise at a more sustainable pace of growth, still attractive but slower than in recent years and the portfolio is overweight the Greater China region in anticipation of this. Stock valuations are historically low, with room to respond favourably to potential cyclical recovery and a return to structural growth.
Valuation: Discount At The Wider End Of Its Range
IAT’s discount has moved in a range of 5% to 10% over much of the last three years, and currently stands at 9.4%. The board intends to tender for 15% of the share capital at a 2% discount to NAV less costs, if the average discount exceeds 10% in the year to 30 April 2013, or an implied average 9.2% over the balance of the period.
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