Schroders enters Asian income arena

Schroders is taking the rare step of launching a mainstream equity investment trust with its new Schroder Oriental Income fund.

The trust, managed by Matthew Dobbs, targets a gross yield of between 4.25% and 4.5% and aims to provide attractive absolute total returns by investing in a diversified portfolio of Asian equities.

According to the Association of Investment Trust Companies, recent investment trust launches have mainly been confined to investing in property and hedge funds. Only a few boutique companies have set up trusts investing directly in equities.

Robin Stoakley, managing director of Schroder Investment Management, says the Henderson Far East Income trust is the only income investment trust in the region currently available in the market, and this fund is trading at a premium.

He adds: “Investors have been approaching us saying they want more choice in this sector. There is demand in the market for this trust and there is a strong investment rationale for launching it. The Asian market currently looks very attractive from a yield perspective.”

Dobbs, who is based in London, currently runs the 168m Schroder Asia Pacific investment trust, launched in 1995. He is supported by 33 analysts in the Asia Pacific region, where Schroders has offices in nine different locations.

The new fund is to be fully invested in Asia Pacific equities from countries including Australia, India, Japan and New Zealand, although no Japanese equity exposure is expected at first, says Stoakley. The trust’s benchmark has yet to be decided.

The investment trust will use active discount management to provide liquidity, adopting a buyback policy if the discount to net asset value exceeds 5%. It will operate a flexible borrowing policy with gearing of up to 25% of net assets. Gearing is expected to be between 15% and 20% at launch.

The Guernsey-domiciled investment trust, which is to be listed on the London Stock Exchange, will launch one ordinary share class via a placing in July.

Management charges include a basic fee of 0.75% of net assets with a performance fee initially set at 10% of total outperformance over a 7% absolute hurdle rate.