Schroder AsiaPacific (SDP)

13/12/2023

Results analysis from Kepler Trust Intelligence

Schroder AsiaPacific (SDP) has released its financial results for the year ending 30/09/2023. Over the year, the trust saw its NAV increase by 2.9% on a total return basis, versus 1.5% for the trust's benchmark. The AIC Asia Pacific sector delivered an average return of -1.4% over the same period.

Outperformance has been driven by good stock selection, and in part by an underweight allocation to China. The index delivered positive returns in local currency terms, but was impacted by translation effects . Regardless, SDP has now delivered outperformance at an annualised rate of 2.4% over the past ten years.

The board were active in buying back shares totalling 6m shares in the year, with a further 1.3m in the period post results, a total amount equal to 4.7% of the current share count.

The trust declared a dividend of 12p per share, in line with the amount paid in the previous year. This was fully covered by income and equated to a yield of 2.5% at the date of publication.

Gearing was 2.1% at the end of the period, supported by a renewal of a £75m revolving credit facility in June 2023.

Chairman James Williams commented on the difficult market backdrop saying: "It is clear that market conditions in Asia - and indeed globally - will continue to be volatile … [but it is] "an ideal time for our managers' investment strategy which remains focused on companies with structural and sustainable competitive advantages trading at attractive valuations."

Kepler View

Whilst the Asian region has been through a period of volatility over the period covered by the report, managers Richard Sennitt and Abbas Barkhordar have delivered another impressive year of performance, with a total return 2.5% ahead of the benchmark and significantly ahead of the peer group.

The period has seen a series of market gyrations, which has led to a divergence in returns. In our opinion, this environment is likely to be beneficial for stock pickers and is a major reason behind the strong relative performance. Currency translations have had an impact on performance. In local currency terms, all but two of the eight major economies in the region had positive returns. However, when translated back to sterling, these returns were notably reduced.

The managers were underweight China which contributed to performance though this was balanced with an overweight to Hong Kong. This was a headwind albeit offset by good stock selection. The managers have been adding to both countries selectively. Taiwan contributed to performance, particularly in the technology holdings. Stock selection was also positive. The managers like India, but remain selective. We believe this pragmatic approach is one of the key drivers behind the consistent outperformance of the trust.

The trust's shares have remained at a steady discount to NAV across the year. The board has recognised this and has been active in trying to stabilise the discount through buy backs which, in our opinion, is a positive sign to investors.

The trust also reduced the upper tier of the management fees to 0.6% from 0.7%.

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