We find a winner, back it big time – then play the Asian long game
NOBODY can accuse the board of directors that oversees Martin Currie Asia Unconstrained Trust of complacency. Over the past three years, it has changed the trust’s name – it was previously Martin Currie Pacific – and overseen a more dividendfriendly policy in response to a wish among investors for a growing income.
A new investment approach has also been introduced which involves backing a small portfolio of companies – no more than 30 – that the manager Andrew Graham, his team and outside ‘forensic’ accountants are convinced will come up trumps. To complete the overhaul, the trust no longer holds any Japanese equities.
Although it is still early days – the new focus on dividends was only implemented in the summer – the trust seems in good shape. Over the past three years, its share price has increased by 76 per cent and the interim dividend payable to shareholders next month represents a healthy 3.8 per cent increase on last year’s corresponding payment.
The only blip is the fact that despite the changes the share price remains at a significant discount – 13 per cent plus – to the value of the trust’s assets. It remains to be seen whether this will reduce as more evidence of its new focus on dividends is revealed, in turn attracting new investors.
Despite the discount, Graham seems in relatively upbeat mood. He is convinced that the new investment strategy introduced in 2014 and dubbed ‘ALTU’ – Asia Long Term Unconstrained – is a winner. As its name implies, it involves identifying winners, backing them big time and then running with the companies long term. It is a particular investment style that Martin Currie specialises in – £2 billion of Asian assets are managed in this way – and one Graham oversees.
The result is a trust comprising some 28 holdings with the ten biggest stakes accounting for more than 50 per cent of its assets. The portfolio includes the familiar and unfamiliar. Among its top ten are positions in HSBC and life insurer AIA – companies with share listings in Hong Kong.
Graham says: ‘HSBC derives 80 per cent of its profits from Asia. It is a business focused on the region and is well capitalised. Dividend growth of between five and six per cent a year is not sufficient for us as investors. What we hope to see in the near future is a period when the bank is growing and is able to pay some special one-off dividends.’
He adds: ‘As for AIA, it operates across Asia. It is splendidly positioned to take advantage of the fact that the region’s population has a massive insurance deficit. What I particularly like is that because AIA is present in numerous countries, it will not come unstuck if it falls foul of a regulator in one market.’
Outside the top ten, the trust’s holdings are a little more obscure to the Western eye. It has key holdings in South Korean company Coway which rents water and air purifiers and Chinese Guandong Investments, listed in Hong Kong. Graham says: ‘Coway is an extraordinary generator of cash. Having sewn up the Korean market, it is now rapidly expanding into Malaysia, the United States and China.’
The board’s determination to deliver shareholders with a growing income means dividend payments will be made from a combination of the trust’s capital and income reserves. Graham insists this emphasis on income will not impact how he runs the trust. ‘Business as usual,’ he says.