Asian Income - the surprise package
Opportunities for income in Asia are being overlooked by most income investors. Nearly 30% of all companies paying dividends in excess of 4% are based in Asia (excl. Japan). If you have a portfolio with an income objective, do you even have 10% invested into Asia?
History tells us that inflation moves in long term sweeps, up for a few decades, then down for a few decades, as you can see on the page 10 graph. We have just enjoyed three decades of inflation and interest rates tumbling. If inflation is finally turning around and up we would like to be confident of the potential for increases in income. Asia already has a proven track record.
Over the period 2000-2009 dividends in Asia grew by nearly 7% per annum, whereas in the UK, Europe and the US it was under 3% - this is a huge differential, more than twice as much income growth from Asia. There is no reason to expect this to change going forward. In fact it could positively surprise.
For example, at the moment Chinese and Indian companies pay little in dividends, and this is sure to change over time as demand for income increases, globally and domestically.
The evidence that gives us most confidence is our actual experience with individual funds. For example, in performance terms the Newton Asian Income is currently the top-rated Asian fund on our analysis, more highly than funds designed to generate growth.
Moreover if you bought the fund for income it has grown the payout by 6% in 2009 (when many UK income funds cut their payouts by 20-30%) and a further 7% increase in 2010.
Importantly, the fund is a medium risk fund, and no more risky than a UK equity income fund.
The current yield is 5.1%.
(Taken from TopFunds Guide January 2011)