Schroder Oriental Income Fund has published its annual report and accounts for the year ended 31 August 2023. The trust’s NAV total return for the full financial year was -3.5%, with a similar return from the share price. This did represent outperformance of the benchmark index, the MSCI AC Pacific ex Japan in sterling terms, which fell by 8.1% during the same period. The chairman observes that it is also worth noting that the strength of sterling was a material contributory factor to the NAV fall.
During the course of the year, a total of 8,010,000 shares were repurchased at an average discount of 5.2% to NAV, with further purchases of 2,220,000 shares since the financial year end.
The trust has increased its dividend by 3.5% to 11.8p per share despite facing a headwind from sterling strength.
Extracts from the manager’s report
Relative performance over the period was helped by the underweight to, and strong stock selection in, China. Stocks in the insurance sector there, such as our holdings in China Pacific Insurance and Ping An, were perceived to be beneficiaries of the move away from ‘Zero COVID’, as it would enable sales agents to conduct more face-to-face meetings which had been constrained during COVID. Also, although the private sector residential property developers had been hit hard by the weak property market, our holding in China Resources Land substantially outperformed, with its investment properties providing a recurring income stream which, together with its relatively robust balance sheet, proved defensive. An absence of the e-commerce names, who pay little or no dividends, was also a positive, as was not holding any of the healthcare names, given a large number derated meaningfully over the year.
Our stock picks in Taiwan added value, led by the IT names. These included semiconductor packaging company ASE, fabless design house Novatek, and power electronics company Delta Electronics, whose products have benefitted from the positive trends in AI and EVs. There was also a positive contribution from stocks in Australia, driven by the diversified resource names. The biggest drag on performance came from the overweight to, and stock selection in Hong Kong, albeit its negative impact was much smaller than the positive one derived from our positioning in China. The two biggest detractors in Hong Kong were our positions in Bank of China (Hong Kong) and telecom company HK Telecom.
From a sector perspective, stock picks in the financials sector did well, including banks in Singapore (Oversea-Chinese Banking Corporation and United Overseas Bank (“UOB”)), Bank Mandiri in Indonesia and our holding in out-of-benchmark SMFG in Japan. Our underweights to consumer discretionary and some of the more defensive sectors, such as healthcare, utilities and staples, all added value. Our overweight to IT names also contributed positively, as described earlier. Our overweight to real estate was a negative – although this was almost entirely offset by strong selection including from our holdings in Singapore, Australia and China. Our overweight to Hong Kong real estate was a drag, where our exposure is predominantly to landlords operating in mainland China as well as Hong Kong. Given their exposure to retail spend via their malls, disappointment in the consumer recovery weighed on share prices.
SOI : Schroder Oriental Income beats benchmark but held back by strong pound