L&G will convert its £55m Far Eastern Trust to an Asian equity income fund, subject to shareholder approval at an extraordinary general meeting (EGM) next week. If approved, the transition is expected to be completed by November 10.
The proposed fund, the L&G Asian Income Trust, will be lead-managed by Paul Hilsley, a member of the L&G pacific equity team.
It will mirror a portfolio Hilsley (pictured) has managed as a component of an L&G Life Managed fund, since January 2007. The size of this portfolio is valued at £302m.
Alan Booker, the manager of the Far Eastern Trust, which was launched in 1985, will continue to manage the L&G Japanese Trust following the conversion.
Ben Waterhouse, a sales director at L&G, says the rationale behind the conversion is the increasing demand for equity income and an increasingly shareholder-friendly ethos across Asia.
“There is on-going intermediary demand for equity income funds,” says Waterhouse. “But investors are typically overweight UK. Asian and Australasian countries have some of the highest-yielding stocks outside Europe with a fifth of the market yielding over 5%.
“Our research also suggests that equity income outperforms during recessionary periods. We expect investors to favour this philosophy over growth for the next couple of years.”
The internal portfolio, on which the new fund is based, has a yield of 5.9%, according to L&G. The Asian Income Trust will target a yield in excess of 5%.
The investment approach adopted for the fund is a combination of bottom-up and top-down styles and the number of holdings will be about 75.
As at September 31, the largest regional weighting within the internal portfolio was Australia and New Zealand at 38.6%, followed by 19.5% in Taiwan and 14.4% in Singapore.
“It will be flexible,” says Waterhouse. “There are no sector or geographical constraints. The team are looking for companies that meet the yield requirement and have strong prospects for growth.
“Companies in Asia and Australia are becoming increasingly shareholder friendly; strong balance sheets and cash flows make them attractive to an income investor. They have learnt their lesson from the Asian crisis in the 1990s.”