Schroder Oriental Income says that, over the year ended 31 August 2016, the net asset value produced a total return of 32.1%, the share price produced a total return of 32.8% and the dividend has increased for the 10th year in a row.
Revenue earnings per share for the year increased by 3.4% to 9.03 pence per share compared with 8.73 pence per share for the previous year, benefiting from a 7.9% rise in investment income as companies in the portfolio continued to grow their dividends to shareholders. Three interim dividends totalling 4.70 pence per share have been paid in respect of the year ended 31 August 2016 and the Board has now declared a fourth interim dividend of 3.80 pence per share for the year. This takes total dividends per share for the year ended 31 August 2016 to 8.50 pence, an increase of 6.3%.
The manager’s report says that the scale of returns over the year has been materially influenced by the weakness of sterling in response to the uncertainty caused by the result of the UK referendum on EU membership. This somewhat disguised the extent to which regional markets made steady progress in local currency terms over the second half of the fiscal year. Much of this represented a recovery from the very severe falls seen in the summer of 2015. More tangible support has come from continued accommodative monetary policies worldwide. This has been mirrored in the region, with reductions in policy rates in Korea, India and China. Concerns over the direction of the Chinese Renminbi exchange rate and dwindling foreign currency reserves have been calmed through concerted policy action including a restructuring of local government debt, proactive interest rate cuts and discouragement of capital outflows. Credit has continued to expand, resulting in a stabilisation in growth and a recovery in commodity prices.
New Zealand has been the strongest market, with particular strength in the currency. Indonesia also performed well thanks to a recovery in commodity prices, a stabilisation in the rupiah and increasing confidence in the reform agenda of President Jokowi. South Korea and Thailand benefited from an upturn in corporate earnings revisions.
In contrast, Singapore yielded subpar returns with key financial and offshore and marine stocks out of favour. Although Chinese growth has stabilised, the overall index has been hampered by its heavy weighting towards State Owned Enterprises where national policy dictates have priority over shareholder returns, while the private sector remains under pressure.
The performance has broadly matched the rise in the Reference Index, the MSCI All Country Pacific ex Japan Index. Stock selection was generally strong, with notable contributions from our holdings in Hong Kong, Singapore and Taiwan. The only material exception was Thailand where regulatory and competition concerns weighed on the telecom holdings. Country allocation was a modest headwind due to the underweight in South Korea (one of the best performing markets) and the overweight in Singapore.
Australia, Hong Kong, Taiwan, China and Singapore have remained the main country exposures in the Company. In terms of changes, we reduced Singapore, Australia and the Philippines, while adding to Hong Kong and South Korea, although the latter market, along with China, remained the principal areas of under exposure compared to the Reference Index.
Real estate, banks, information technology and telecommunications account for almost two thirds of the Company’s investments. In terms of changes over the year, we added to materials on valuations grounds, while reducing real estate, particularly REITs.
SOI : Schroder Oriental Income increases dividend for 10th year in a row