Schroder Oriental Income (SOI)

24/10/2024

Results analysis from Kepler Trust Intelligence

Schroder Oriental Income (SOI) has released its final results for the year ending 31/08/2024. Over the period, the trust saw its NAV increase by 18.2% on a total return basis, which is over twice the return of 8.6% for the trust's formal benchmark. The AIC Asia Pacific Equity Income sector delivered a weighted average return of 12.9% over the same period.

The trust benefitted from an improvement in market backdrop as the Federal Reserve began to cut interest rates, leading to improved investor confidence which has supported Asian markets.

The strong absolute and relative performance has also been driven by the trust's tech stocks which have benefitted from the AI theme. The trust's financials exposure also supported performance.

By contrast, China struggled though the manager's underweight allocation proved beneficial. Post-results, China has seen a market recovery which the overweight to Hong Kong benefitted from.

Dividends totalled 12p per share, equating to a historic yield of 4.4% and marking 19 consecutive years of growth. The dividend was slightly above earnings meaning reserves were utilised.

The trust's discount widened year on year. The board undertook significant share buybacks in the year, which have continued in the post-results period.

Gearing remains unchanged, with the multi-currency facility was renewed for another year.

The trust's outgoing chair, Paul Meader discussed how Asia has benefitted Richard's stock selection approach, saying "The region remains fertile territory for a disciplined stock picker [and] remains as relevant for investors today as it did at inception."

Kepler View

Schroder Oriental Income's (SOI) full year results describe another year of impressive performance. Manager Richard Sennitt has presided over a strong period, including returning more than double the benchmark. This has again been largely driven by stock selection.

Richard's overweight to tech stocks has provided positive attribution, despite the sector not often featuring in income portfolios. Furthermore, the underweight in China has supported relative performance. Despite this, Richard has managed to generate positive stock selection from China and Hong Kong which is an overweight allocation. We believe this demonstrates the potential for long-term outperformance and reinforces the trust's differentiated income stream.

In his outlook, Richard acknowledges that China weighs heavily on the market. The country remains challenged, however, a range of stimulus measures announced after the results have buoyed sentiment, albeit with volatility. Richard added to some China holdings, albeit remains underweight, instead holding an overweight to Hong Kong to balance risks.

The board also declared an increased final dividend, marking the 19th consecutive year of growth. We believe the use of reserves shows the board's commitment to maintaining the dividend growth track record. The trust continues to have sizeable reserves, supporting the dividend outlook, in our opinion.

The discount widened in the year and post results, despite improved optimism. We believe this could prove an attractive entry point for long-term investors. The board has been active with share buybacks which have been accretive to NAV, but are also arguably a vote of confidence in the trust.

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