Newton Asian Income - investing in steady eddies can pay off

Kate Marshall | Wed 20 March 2019

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• This fund offers a way to access Asia's long-term growth potential and get paid an income
• It's held up well during a tough time for the broader market
• We think it's a reasonable choice, though we currently prefer others in the Asia sector

Our view

The Newton Asian Income Fund offers investors a way to access Asia's long-term growth potential. It also offers something a little different to most Asian funds – it aims to pay a regular income.

Zoe Kan, lead manager, has been involved in running the fund since 2005. She also has the support of a broader team of portfolio managers and analysts at Newton.

We think the team use a sensible investment approach, which they've used for many years. They focus on how sustainable they think a business can be, and the earnings and dividends they generate. This approach means the fund has tended to hold up better than some others when the broader Asian stock market falls. It hasn’t gone up as quickly when they rise though.

The fund currently yields 4.0%, although this isn't guaranteed or an indication of the fund’s future income. We think it has the potential to deliver good long-term returns, but it's not on the Wealth 50 list of our favourite funds. We currently have more conviction in other Asian funds that use a similar approach.

Resilience in uncertainty

It's been a tough year for most global markets. Worries about an economic slowdown in China and a trade feud between the US and China unsettled investors. This put pressure on the broader Asian stock market, which fell 3.8% over the past year.

Newton Asian Income held up well though and it grew 6.9%*. This is no mean feat during a time when the shares of many Asian companies lost money. This isn't a guide to how the fund will perform in future though.

Past performance is not a guide to the future. Source: *Lipper IM to 28/02/2019

The fund invests in companies that have tended to grow earnings at a steadier rate. They're unlikely to race ahead during the good times. But it's their resilience during tougher times that makes them stand out.

Link REIT was one of the fund's best performers. It's based in Hong Kong and invests in a range of real estate assets, like shopping malls and car parks. It was helped by an improvement in rental reversions (the change in rents after leases get renewed). An investment in the Macquarie Korea Infrastructure Fund also performed well after its manager won a vote to keep control of the fund.

Australian property group Dexus and toll-road operator Transurban also performed well. The managers used this as a chance to take some profits from these investments. Global packaging company Amcor was also sold. They used the proceeds to add to investments, like Samsung Electronics, which had been through a tougher time and could be bought at a better share price.

The fund mainly focuses on developed Asian markets such as Australia and Singapore. But it also invests in some higher-risk emerging markets, like Taiwan and India.

The importance of dividends

The managers think there are still plenty of challenges facing the global and Asian economies. Global debt has continued to rise in recent years and this could weigh on economic growth. Major central banks have also started to withdraw policies that were meant to stimulate growth, and have pushed stock markets higher for several years.

They continue to look for companies that could make plenty of cash no matter what's going on in the economy. This should support the dividends they pay to shareholders.

The managers are confident investing for income is one of the best approaches when markets are volatile. This is because dividends can be more reliable than share prices. Companies have more control over their dividends and they often avoid cutting them unless absolutely necessary. So investors continue to get paid an income while they wait for share prices to recover. There are no guarantees though and ultimately you could still get back less than you invest.

Please note the fund takes charges from capital, which can increase the yield but reduce the potential for growth. It also has the flexibility to use derivatives, which adds risk.

Find out more about this fund including charges

Newton Asian Income key investor information