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Invesco Asia caught out by COVID

Invesco Asia caught out by COVID – Invesco Asia generated a -10.2% return on net assets for the year ended 30 April 2020 and a -10.0% return to shareholders. By contrast, the benchmark’s return was -4.1%. The dividend was raised by 22.8% to 7.0p. This was well-covered by revenue per share of 7.8p. The trust shrank by 3.6m shares over the year but the discount still widened slightly. As the assets fell, the ongoing charge rose to 1.02% from 0.98%.

The chairman says that they were positioned for a cyclical recovery in Asia but got hit by a COVID-19 related recession. The portfolio was repositioned to reflect the new reality and some of the underperformance has been recovered since the year end.

Extracts from the manager’s report

“The portfolio’s tilt towards more economically sensitive sectors – particularly financials – which could benefit from a recovery, has cost us in terms of relative performance as these areas sold off, in some cases indiscriminately. Exposure to technology, health care and internet stocks has offered some reprieve, but not enough.”

The performance differential between economically sensitive (or cyclical) stocks and internet/technology has been significantly in favour of the latter. Stock selection in financials was a key detractor from relative performance, particularly our exposure to ASEAN banks where there are legitimate concerns over the near-term outlook for loan growth and asset quality, with margins under pressure due to interest rate cuts. Markets appear to be pricing in a worst case scenario for the banking sector at large, overlooking the strong capital positions in many cases. The Indian market has underperformed as concerns have grown over the potential impact of Covid-19 just as the economy was emerging from years of balance sheet repair within the banking system. Real estate developer Sobha and agrochemical company UPL were amongst the biggest detractors. Oil price weakness has negatively impacted Chinese oil & gas major CNOOC, while China BlueChemical faced a weaker price environment for its two main products methanol and urea. Meanwhile, Samsonite International, the luggage manufacturer, faced concerns over debt covenants and the impact of tariff increases in the US before the coronavirus crisis struck, although we have been impressed by actions taken to strengthen liquidity, control costs and manage cash flow.

On the other hand, internet and technology stocks have been significant contributors. Working from home has accelerated the demand for online services and hardware. Unsurprisingly, online gaming companies have outperformed in the current environment, with NetEase and Tencent seeing little disruption to their core businesses. Chinese e-commerce company JD.com has also made strong gains, with recent investment in warehousing and logistics meaning it was perfectly positioned to continue delivering more orders to its growing number of customers. MediaTek saw its share price pull back slightly in early 2020 after a strong period of performance for the semiconductor design company, but the shares have been strong again recently with the company reiterating its earnings guidance for FY 2020 supported by strength of demand for its higher margin 5G chips, while there is also some excitement over its new high-end AI ASIC chip, a next generation microprocessor that helps process AI (artificial intelligence) tasks faster, using less power. Finally, an overweight position in Samsung Electronics has contributed positively given signs of restocking as we appeared to be nearing the bottom of the downturn in the memory chip cycle, with improvements in their mobile phone business also supporting the share price.”

IAT : Invesco Asia caught out by COVID

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