TIDMIAT
Invesco Asia Trust plc
Half-Yearly Financial Report
For the Six Months to 31 October 2020
Investment Objective
The Company's objective is to provide long-term capital growth by investing in
a diversified portfolio of Asian and Australasian companies. The Company aims
to achieve growth in its net asset value (NAV) in excess of the Benchmark
Index, the MSCI AC Asia ex Japan Index (total return, net of withholding tax,
in sterling terms).
Financial Information and Performance Statistics
The Benchmark Index of the Company is the MSCI AC Asia ex Japan Index (total
return, net of withholding tax, in sterling terms)(3).
Total Return Statistics (1) (dividends reinvested)
Six Months to Six Months
to
31 October 31 October
2020 2019
NAV per share(2) 24.0% -3.7%
Share price(1) 19.9% -6.7%
Benchmark index (2)(3) 18.9% -1.9%
Capital Statistics
At At
31 October 30 April
2020 2020 change %
Net assets (£'000) 231,729 186,948 24.0%
NAV per share(2) 346.62p 279.64p 24.0%
Share price(1) 304.50p 254.00p 19.9%
Benchmark index (capital return)(1)(2) 1,059.44 904.96 17.1%
Discount(2) per ordinary share (cum income) (12.2)% (9.2)%
Average discount over six months/year(1)(2) (12.7)% (11.0)%
Gearing(2):
- gross 4.0% 5.5%
- net 3.8% 4.3%
- net cash nil nil
(1) Source: Refinitiv.
(2) Alternative Performance Measures (APM), see pages 16 and 17 for the
explanation and reconciliations of APMs. Further details are provided in the
Glossary of Terms and Alternative Performance Measures in the Company's 2020
annual financial report.
(3) Index returns are shown on a total return basis, with income reinvested
net of withholding taxes. Previously Index returns, on a total return basis,
were shown with income reinvested gross of withholding taxes. This change is
also reflected, retrospectively, to any long term total returns shown in this
half-year report for comparison and consistency.
Chairman's Statement
"Investment trusts have a variety of tools available that differentiate them
from open-ended funds. When we believe that they will have an impact, we will
deploy them."
"The case for Asia relative to the world does appear strong and that is a good
starting point."
"Asia has managed the Covid-19 crisis relatively well, and balance sheets are
generally sound."
"We have introduced a new enhanced dividend policy and a performance
conditional tender offer."
I concluded my last statement by saying "it is at times like these that an
active management style should prosper". It is pleasing to report that is
exactly what has happened in the six months to 31 October 2020. Performance has
been strong with NAV per share up by 24.0% while our benchmark MSCI AC Asia ex
Japan Index was up 18.9% (both on a total return basis, net of withholding
tax). Your share price rose by a smaller 19.9% as the discount widened from
9.2% to 12.2%.
Performance attribution shows that both country and sector allocations
contributed positively but that the greatest contribution came from stock
selection. That is what active portfolio management is all about.
Ian Hargreaves reviews the portfolio, performance and outlook in detail in his
Portfolio Manager's Report.
The Investment Case
We believe that the Investment Case for Invesco Asia Trust plc ("the Company")
remains strong. The philosophy is well articulated and consistent, searching
for Asian companies whose shares trade at a significant discount to fair value.
Led by Ian, the team is focused on stock selection and continues to operate an
institutional strength investment process with a long term performance record
to match.
One change is that Ian has a new boss: Stephanie Butcher has taken over as CIO
for Invesco in Henley. We have been impressed by Stephanie and believe that her
approach is positive for Ian, the Company and indeed for Invesco generally.
The Corporate Proposition
Our belief is that for an investment trust to deliver maximum value for its
shareholders, the Board has to have a Corporate Proposition that sits alongside
the Investment Case and enhances it, making the Company doubly attractive to
potential and existing shareholders.
We have announced a range of initiatives over the past two years, including a
second, lower tier management fee, an upgrade to our website and more active
engagement with our individual shareholders. All these are designed to spark
new demand for the company's shares and to reduce the discount. However, with
the discount moving above 10%, we decided to go further and announced two new
measures on 28 August.
First, a new enhanced dividend policy: The Board now aims to pay, in the
absence of unforeseen circumstances, a regular six-monthly dividend equivalent
to 2% of the Company's NAV, calculated on the last business day of September
and February. The dividends will be paid to shareholders in November and April.
Dividends will be paid from a combination of the Company's revenues, revenue
reserves and capital reserves as required. So shareholders will be able to look
forward to an annual dividend yield of approximately 4% of NAV. Shareholders
should note that the new dividend policy of paying dividends calculated as a
percentage of NAV means that dividends will fall if NAV falls. To be clear,
there is no intention to change the Company's investment policy nor the
portfolio manager's investment approach as a result of the new dividend policy:
Ian and the team will manage the portfolio in exactly the same way as before.
On 23 October, we announced a first interim dividend of 6.7p per ordinary share
in respect of the year ending 30 April 2021. 6.7p is equivalent to 2% of the
Company's NAV on the last business day of September 2020. A second interim
dividend is expected to be paid in April 2021 again equivalent to 2% of NAV,
giving a total distribution of approximately 4% of NAV over the year.
The second measure was the introduction of a performance conditional tender
offer. Under the terms of the proposal, the Board is undertaking to effect a
tender offer for up to 25% of the company's issued share capital at a discount
of 2% to the prevailing NAV per share (after deduction of tender costs) in the
event that the Company's NAV cum-income total return performance over the five
year period to 30 April 2025 fails to exceed the Company's comparator index,
the MSCI AC Asia ex Japan Index (net of withholding tax, total return in
sterling terms) by 0.5% per annum over the five years on a cumulative basis.
Shareholders already have the opportunity to vote on the continuation of the
Company every three years, but the Board believes that also providing
shareholders with the option to tender a proportion of their shares for a cash
price close to NAV if the Company underperforms constitutes a pragmatic and
attractive initiative, particularly if the shares were to be trading at a
material discount at the time.
Total Return (dividends reinvested) to 31 October 2020(1)
One Three Five Ten
Year Years Years Years
Net asset value (NAV) 15.5% 11.8% 90.5% 148.8%
Share price 15.7% 14.0% 90.6% 140.4%
Benchmark index(2) 15.9% 16.4% 88.2% 107.7%
(1) Source: Refinitiv.
(2) The benchmark index of the Company was changed on 1 May 2015 to the MSCI
AC Asia ex Japan Index from the MSCI All Companies Asia Pacific ex Japan Index
(both indices total return, sterling terms).
Other News
After consultation with our major shareholders we have made a minor change in
the benchmark index we use for performance comparison purposes. It is still the
MSCI AC Asia ex Japan Index, but we are now showing it calculated on a net of
withholding tax basis instead of gross. As the Company pays withholding tax, we
believe this is the fairest way to evaluate performance.
It was disappointing that our Annual General Meeting on 3 September had to be a
closed meeting because of the Covid-19 restrictions. Ian's presentation was
uploaded to our website that day and is still there. I hope shareholders found
it useful.
Tom Maier retired from the Board at the conclusion of the AGM after serving
eleven years. We thank him for his sustained contribution to the Company and in
particular the keen focus that he gave to analysis of investment performance,
which will continue. His replacement, Vanessa Donegan, had already joined the
Board in October 2019 so we revert to four Directors.
There have been no share buybacks over the period.
Update
From 31 October to 21 January, NAV per share has risen by 26.2%, outperforming
the MSCI AC Asia ex Japan Index return of +19.5%. The share price has risen by
34.6% with the discount narrowing from 12.2% to 6.3%.
Outlook
Many are wondering if they have missed the opportunity to invest in Asia that
presented itself in 2020. Asian markets have bounced 59% off their March lows
and are at new highs. However, even now Asia has underperformed the MSCI World
Index sharply over 10 years with the MSCI Asia ex Japan Index +147% versus the
World's +218%.
There are possible tailwinds for markets with the return of consumer and
corporate confidence post Covid-19, a recovery both of domestic and export
markets for Asian companies, support for capital inflows from a weaker US
dollar. The new Regional Comprehensive Economic Partnership comprising the
ASEAN countries plus China, Japan, South Korea, Australia and New Zealand will
provide fresh longer term benefits. Possible headwinds include above average
starting valuations, Covid-19 related setbacks, the threat of rising interest
rates as economies recover and greater regulation of the large technology
companies that have dominated stock markets last year.
Overall there are too many variables to make a confident prediction of absolute
returns from here. But the case for Asia relative to the world does appear
strong and that is a good starting point. Moreover, political uncertainties
have risen to the fore. Political risk has always been a feature of investing
in stock markets and it is particularly so in Asia. While political risk can
lead to falls in stock markets, it can also lead to opportunities for gains.
One of the reasons why Asian markets have typically traded at lower valuations
than, say, America is the political risk discount. The recent US Executive
Order restricting US persons from investing in certain Chinese companies has
affected some of our institutional shareholders who manage money on behalf of
American citizens.
Neil Rogan
Chairman
25 January 2021
Portfolio Manager's Report
Portfolio Manager
Ian Hargreaves was promoted to Co-Head of the Asian & Emerging Markets Equities
team in September 2018. Ian manages pan-Asian portfolios and covers the entire
Asian region in his remit. He started his investment career with Invesco Asia
Pacific in Hong Kong in 1994 as an investment analyst where he was responsible
for coverage of Indonesia, South Korea and the Indian sub-continent, as well as
managing several regional institutional client accounts. Ian returned to the UK
to join Invesco's Asian Equities team in 2005, working on the portfolio as part
of the investment team. He was appointed as joint Portfolio Manager in 2011 and
became the sole Portfolio Manager on 1 January 2015.
How has the company performed in the period under review?
The Company's net asset value increased by 24.0% (total return, in sterling
terms) over the six months to 31 October 2020, which compares to the benchmark
MSCI AC Asia ex Japan Index return of 18.9%.
Markets enjoyed a strong recovery over the six month period, boosted by
significant stimulus from central banks and the reopening of economies across
the world as Covid-19 lockdowns were lifted. There has also been optimism
surrounding progress on a Covid-19 vaccine and an ongoing economic recovery.
While the recovery in markets has been V-shaped, there has been a marked
divergence in performance between sectors, as healthcare, internet and
technology companies have fared far better than financials, energy and
travel-related companies.
There has also been a marked turnaround in relative performance for the
portfolio, which has been pleasing to see given the changes we made earlier in
the year. Having begun the year with a tilt towards more cyclical areas,
reflecting our expectation that they would benefit from a gradual cyclical
recovery in 2020, the portfolio was repositioned to account for the sudden
change in outlook for economic growth brought about by the pandemic. The most
significant adjustment being a reduction in exposure to financials. However, we
did not want to reduce the portfolio's ability to participate in a rebound.
Rather than taking defensive action and shifting exposure to less economically
sensitive areas with steady earnings streams, such as utilities or consumer
staples companies, we preferred to add to selected cyclical businesses that had
scope for earnings to recover quickly as conditions normalise. We have been
able to find what we consider to be deep discounts to fair value in these
areas, with conviction levels supported by the strong balance sheets that some
of these companies have.
What have been the biggest contributors? And detractors?
Technology and internet companies have been the best performers over the
period, further demonstrating the appeal of their strong fundamentals and
attractive growth prospects. Taiwanese memory chip designer MediaTek was the
biggest contributor thanks to robust demand for its higher margin 5G chip and
excitement over its new high-end, next generation microprocessor that helps
process AI (artificial intelligence) tasks faster, using less power. Delta
Electronics benefited from its exposure to major industry trends (5G,
automation and cloud) that should support a recovery in margins and deliver
more sustainable growth over the medium-term, while ASUSTeK Computer has seen
strong demand for PCs and notebooks given the working/studying from home trend.
Taiwan Semiconductor Manufacturing also made strong gains, with investors
increasingly focused on the upside potential from Intel outsourcing some of its
chip production, a move that could see the size of its total addressable market
increase by around 40%. Chinese internet companies have continued to
outperform, with JD.com and NetEase both adding value as solid Q1 earnings
reflected the fact that e-commerce and online gaming companies had seen little
disruption to their business and may have even benefitted from the stay-at-home
trend. Both companies also enjoyed successful secondary listings in Hong Kong.
The portfolio's exposure to Chinese consumer-related companies has also
contributed positively. Baijiu distiller Jiangsu Yanghe Brewery and fitted
furniture manufacturer Suofeiya Home Collection (both A-shares) saw evidence of
a strong recovery in demand as lockdowns were lifted.
More recently, auto-related stocks have been a support. Hyundai Motor has
benefited from a recovery in sales, particularly in its home market where there
is strong demand for its new, higher margin, SUV models; while the market has
also turned more positive on its electric vehicle (EV) business plans. Mahindra
& Mahindra has enjoyed strong tractor sales while Minth Group made large gains
after bullish comments from management raised expectations over its new battery
housing business, which is expected to make a growing contribution to revenues
next year.
On the other hand, China Mobile detracted as the market continued to show a
preference for stocks with higher growth characteristics. Stock selection in
the energy sector counted against us as CNOOC underperformed given the prospect
of slowing demand and a weakening oil price. CK Hutchison has also proved to be
Covid-19 sensitive, with weaker earnings from its ports, retail and energy &
infrastructure businesses. However, the business continues to be well managed,
and as conditions normalise, we would expect the group to return to delivering
good earnings growth and generating strong free cash flow. The recently
announced deal to sell its European telecom towers will also help reduce
gearing and could be a positive catalyst for the share price.
Finally, financials remained out of favour, with our holdings in banks and
insurance companies detracting from performance. While there are legitimate
concerns surrounding low-rates, slow growth and rising, non-performing loans
(NPLs) we believe the market has mispriced the risks for better quality
operators with strong capital positions.
Key Total
Contributors impact %
MediaTek 1.59
JD.com 1.35
Jiangsu Yanghe Brewery 0.81
Mahindra & Mahindra 0.58
Suofeiya Home Collection 0.40
Key Total
Detractors impact %
China Mobile -0.81
CNOOC -0.58
CK Hutchison -0.52
China Pacific Insurance -0.47
Korean Reinsurance -0.40
How has positioning changed?
We continue to believe that buying businesses for less than they are worth is
the most sustainable way to make money for shareholders.
Technology and internet companies have been big beneficiaries of a new tech
cycle with the launch of 5G networks, and changes in consumer behaviour, such
as working from home and an increase in the trend towards online shopping.
However, the strong gains seen in share prices year-to-date suggest their
strong fundamentals and improved earnings prospects are being increasingly
recognised, and we have been taking profits.
The healthcare sector remains an area of the market where we have only limited
exposure, given that we generally find valuations very rich. Some sub-sectors,
such as biotech and contract research organisation (CRO), have what we consider
to be an unfavourable balance of risk/reward given the difficulty in
forecasting R&D success, without which there could be significant downside
risk. The valuations of the more traditional Chinese pharma companies are more
reasonable, but this reflects a hostile regulatory environment that is and will
continue to lead to price deflation in traditional chemical drugs. The Chinese
government is keen to lower pricing to mitigate the cost of providing broader
medical expense cover. This usually means lower profitability levels which
justifies a lower valuation.
We are looking for new ideas trading at significant discounts to our estimate
of fair value, with deep discounts currently available in more cyclical areas
of the market, where there is less confidence in the pace of recovery. The
companies that interest us most tend to be Covid-19 sensitive industrials where
the pandemic is unlikely to have materially changed fundamentals, but earnings
can recover quicker than the market expects as conditions normalise.
Astra International is a good example, with interests in a wide range of market
leading auto-related businesses in Indonesia, including: 4-wheeler
manufacturing for Toyota; 2-wheeler manufacturing for Honda; auto dealerships
and auto financing. Having struggled with slower growth in recent years, the
shares de-rated even further given Covid-19 related demand uncertainty. While
the fundamentals of the Indonesian economy are weak in the near-term, we
believe that auto demand should eventually grow as Gross Domestic Product (GDP)
per capita rises, while Astra should also benefit from new Toyota model
launches expected in 2021.
Another example of an under appreciated investment opportunity is Yue Yuen
Industrial, the world's largest sports shoe manufacturer, serving global brands
such as Nike, Adidas and Asics. . While retail sales in developed markets have
recovered strongly, Yue Yuen's earnings may lag given the need to destock
inventories, but by early next year sales should be beginning to return to
normal. The share price, still around 30% below where it was in January,
reflects little hope of recovery. The fact that the company has also spent the
last couple of years focused on relocating manufacturing capacity outside
China, investing in automation and a new enterprise resource planning (ERP)
system to enable it to better manage shorter lead times from customers, should
aid its eventual earnings recovery. We feel that a single digit normalised p/e
represents a significant discount to fair value.
We have also been able to find compelling prospects which are less Covid-19
sensitive. For example, we have been adding to ASUSTeK Computer, given that we
expect the PC and motherboard manufacturer to be able to continue to generate
strong free cash flow, supported by work from home trends and strong growth in
gaming. Furthermore, the value of its stakes in Pegatron, Advantech and Asmedia
plus net cash is more than ASUSTeK's current market capitalisation.
Finally, there have been a few small changes in our financials exposure, where
we retain a preference for groups with a decent level of core profitability and
structural growth potential, such as Indian private banks and Chinese life
insurers. Over the period, we sold HDFC Bank and took advantage of share price
weakness to introduce Housing Development Finance preferred for its improvement
in competitive intensity, a low base in the property cycle and medium-term
growth potential from higher mortgage penetration. In Korea, we sold Korean
Reinsurance and introduced Samsung Fire & Marine, an insurer that has been
gradually improving its underwriting business, which should lead to higher
profitability and earnings growth, in our view.
Where else do you see opportunity?
India remains the portfolio's biggest country overweight. Within Asia, it has
probably had the worst pandemic experience in terms of impact on its
population's health and the sharp shock felt by the economy as a result of what
was a largely ineffectual lockdown strategy. The Indian government was swift to
abandon this strategy and has instead focussed attention on support for the
economy, which appears to be working. Domestically driven, India's economy is
open for business again and with infection and death rates falling there is
less concern about having to protect a Covid-19 'clean sheet'.
From a top-down perspective we remain positive for several reasons: India is at
the bottom of its credit cycle, with Credit/GDP almost unchanged since the
Global Financial Crisis (GFC), providing scope for a pick-up in credit growth
that should support broader economic growth. We are also encouraged by positive
reform momentum. While some measures have led to short-term economic pain, they
should bear fruit within our investment horizon, with the recent new labour
code likely to help incentivise investment and small business creation.
We have recently added exposure to Indian private banks, which are still taking
market share from the dominant, less well-run state-owned banks. We are also
comfortable owning other economically sensitive stocks in India given the large
structural growth opportunities. This year we've seen some solid and
well-managed companies suffer from the lack of economic activity, which has
allowed us to take positions at historically attractive valuations. For
example, we had added to Larsen & Toubro (L&T) which is not only a leading
construction and infrastructure business with a strong balance sheet - a
characteristic we value in these uncertain times - but is a beneficiary of a
return to normality. Our analysis suggests that L&T's core engineering &
construction business is being valued below the level it reached during the
GFC.
Do you see any change in US-China relations given the US election result?
The relationship between the US and China is unlikely to improve dramatically
due to a change of President, with tensions likely to remain for the
foreseeable future. While we expect US policy under Joe Biden to be handled
more diplomatically, and less haphazardly, it is prudent to assume that Biden
will be slow to roll back the Trump administration's measures targeting trade,
technology or financial markets.
Following the interim period-end, the former US President issued an order
imposing restrictions on US persons from investing in certain named Chinese
companies, with which the Company will comply.
What is your outlook for further out
The pandemic has been enormously disruptive, but Asia has fared relatively well
compared
to other regions, with activity levels now back to pre Covid-19 levels in many
sectors. The global economy is also gradually getting back to normal, supported
by a demand recovery in the US and Europe. However, a second/third wave of
infections remains a concern, particularly given the likelihood that renewed
lockdowns will see a slowing in economic momentum, a set-back for the global
recovery.
The prospect of several successful vaccines being ready for distribution in the
new year has given markets a lift, particularly the worst hit Covid-19
sensitive service sectors. Not only that, but a scenario in which we have an
effective vaccine sooner than expected, sees improved earnings prospects for
undervalued cyclical stocks that we favour. However, there are still challenges
ahead, specifically concerning how vaccination programs might be successfully
rolled out on such a large scale.
In the near-term, the global liquidity environment is likely to remain
accommodative given the unprecedented scale of policy support. Monetary and
fiscal stimulus measures combined should provide a tailwind to economic
activity, with policymakers unlikely to repeat the mistakes of the recent past
in trying to withdraw support too early. However, once normality has returned,
governments in developed markets will be forced to begin to chart a course back
to policy orthodoxy. This is likely to present a risk to more highly rated
stocks, but would benefit cyclicals.
In Asia, most countries went into the crisis with relatively low levels of
government debt, which means they may not need to revert to austerity once the
crisis is over. Furthermore, economic growth in China is recovering without the
authorities having to rely on the sort of fiscal impulse manufactured in
developed economies.
While stock markets currently have policy and vaccine tailwinds behind them, we
feel it important not to exaggerate the likely positive impact of economic
normalisation. Markets have done very well since they bottomed in March, with
the MSCI Asia ex Japan Index currently on a forward P/E of around 16x 2021
earnings, which is toward the upper end of its historic range, albeit still
comparing favourably relative to developed markets. Current consensus estimates
for earnings growth in 2021 of around 24% appear to reflect a degree of
optimism in expectations. Given the wide divergence in performance and
valuation between sectors and countries, opportunities are still available,
particularly in undervalued cyclical stocks. However, we feel the need to be
selective and maintain a balanced portfolio.
Ian Hargreaves
Portfolio Manager
25 January 2021
Principal Risks and Uncertainties
The Board has carried out a robust assessment of the risks facing the Company,
including emerging risks. These include those that would threaten its business
model, future performance, solvency and liquidity. The principal risks that
follow are those identified by the Board after consideration of mitigating
factors.
Category and Principal Risk Description Mitigating Procedures and Controls
Strategic Risk
Market and Political Risk The Company has a diversified investment
The Company's investments are traded on Asian portfolio by country and by stock. Its
and Australasian stock markets as well as the investment trust structure means no forced
UK. The principal risk for investors in the sales need to take place and investments can
Company is a significant fall and/or a be held over a longer term horizon. The
prolonged period of decline in these markets. Manager evaluates and assesses political risk
This could be triggered by unfavourable as part of the stock selection and asset
developments within the region or events allocation policy which is monitored at every
outside it. The extreme volatility Board meeting.
experienced in March 2020 from the market However, there are few ways to mitigate
reaction to the Covid-19 virus exemplifies absolute market and political risk because it
this risk, which has had a marked effect on is engendered by factors which are outside
both the valuation of the Company's portfolio the control of the Board and the Manager.
of investments and the discount to net asset These factors include the general health of
value at which the Company's shares trade the world economy, interest rates, inflation,
during the period. government policies, industry conditions,
Political developments can also create risks political and diplomatic events, changes to
to the value of the Company's assets, such as legislation, and changing investor demand.
US-China trade tensions and unrest in Hong Such factors may give rise to high levels of
Kong, or impact on the GBP foreign exchange volatility in the prices of investments held
rate as a result of Brexit. Political risk by the Company.
has always been a feature of investing in
stock markets and it is particularly so in
Asia. Asia encompasses a variety of political
systems and there are many examples of
diplomatic skirmishes and military tensions,
and sometimes these resort to military
engagement. Moreover, the involvement in Asia
of the United States and European countries
can reduce or raise tensions.
Investment Objectives The Board receives regular reports reviewing
The Company's investment objectives and the Company's investment performance against
structure are no longer meeting investors' its stated objectives and peer group, and
demands. reports from discussions with its brokers and
major shareholders. The Board also has a
separate annual strategy meeting.
Wide Discount The Board receives regular reports from both
Lack of liquidity and lack of marketability the Manager and the Company's broker on the
of the Company's shares leading to stagnant Company's share price performance, level of
share price and wide discount. share price discount to NAV and recent
Persistently high discount may lead to trading activity in the Company's shares. It
buybacks of the Company's shares and may seek to reduce the volatility and
resulting in the shrinkage of the Company. absolute level of the share price discount to
NAV for shareholders through buying back
shares within the stated limit. The Board
also receives regular reports on marketing
meetings with shareholders and prospective
investors and works to ensure that the
Company's investment proposition is actively
marketed through relevant messaging across
many distribution channels.
Investment Management Risk
Performance The Board regularly compares the Company's
Portfolio Manager consistently underperforms NAV performance over both the short and long
the benchmark and/or peer group over 3-5 term to that of the benchmark and peer group
years. as well as reviewing the portfolio's
performance against the benchmark
(attribution) and risk adjusted performance
(volatility, beta, tracking error, Sharpe
ratio) of the Company and versus its peers.
The Board also receives reports on and
reviews: the portfolio, transactions in the
period, active positions, gearing position
and, if applicable, hedging.
Key Person Dependency The Portfolio Manager works within, and is
The Portfolio Manager (Ian Hargreaves) ceases Co-Head of Invesco's Asian & Emerging Markets
to be Portfolio Manager or is incapacitated Equities team with William Lam. Ian is
or otherwise unavailable. supported by Fiona Yang and the wider team.
Currency Fluctuation Risk With the exception of borrowings in foreign
Exposure to currency fluctuation risk currency, the Company does not normally hedge
negatively impacts the Company's NAV. The its currency positions but may do so should
movement of exchange rates may have an the Portfolio Manager or the Board deem this
unfavourable or favourable impact on returns to be appropriate. Contracts are limited to
as nearly all of the Company's assets are currencies and amounts commensurate with the
non-sterling denominated. asset exposure. The foreign currency exposure
of the Company is reviewed at Board meetings.
Third Party Service Providers (TPPs) Risk
Unsatisfactory Performance of Third Party Details of how the Board monitors the
Service Providers services provided by the Manager and other
Failure by any service provider to carry out third party service providers, and the key
its obligations to the Company in accordance elements designed to provide effective
with the terms of its appointment could have internal control, are included in the
a materially detrimental impact on the internal control and risk management section
operations of the Company and could affect on page 19 of the Company's 2020 annual
the ability of the Company to successfully financial report.
pursue its investment policy and expose the
Company to reputational risk. Disruption to
the accounting, payment systems or custody
records could prevent the accurate reporting
and monitoring of the Company's financial
position.
Information Technology Resilience and As well as regular review of TPPs' audited
Security service organisation control reports by the
The Company's operational structure means Audit Committee, the Board receives regular
that the main cyber risk (information and updates on the Manager's information and
physical security) arises at its third party cyber security. The Board monitors TPPs'
service providers. This cyber risk includes business continuity plans and testing -
fraud, sabotage or crime perpetrated against including the TPPs and Manager's regular
the Company or any of its TPPs. 'live' testing of workplace recovery
arrangements.
Operational Resilience The Manager's business continuity plans are
The Company's operational capability relies reviewed on an ongoing basis and the
upon the ability of its TPPs to continue Directors are satisfied that the Manager has
working throughout the disruption caused by a in place robust plans and infrastructure to
major event such as the Covid-19 pandemic. minimise the impact on its operations so that
the Company can continue to trade, meet
regulatory obligations, report and meet
shareholder requirements.
As the impact of Covid-19 continues, the
Manager has mandated work from home
arrangements and implemented split team
working for those whose work is deemed
necessary to be carried out on business
premises. Any meetings are held virtually or
via conference calls. Other similar working
arrangements are in place for the Company's
third-party service providers. The Board
receives regular update reports from the
Manager and TPPs on business continuity
processes.
Twenty-five Largest Holdings
AT 31 OCTOBER 2020
Ordinary shares unless stated otherwise
? The industry group is based on MSCI and Standard & Poor's Global Industry
Classification Standard.
At Market
Value % of
Company Industry group? Country £'000 Portfolio
TencentR Media & Entertainment China 20,479 8.4
Alibaba - ADS Retailing China 18,752 7.7
Samsung Electronics Technology Hardware & Equipment South Korea 17,202 7.1
Taiwan Semiconductor Semiconductors & Semiconductor Taiwan 16,368 6.8
Manufacturing Equipment
MediaTek Semiconductors & Semiconductor Taiwan 10,926 4.5
Equipment
JD.com - ADR Retailing China 9,027 3.7
ICICI - ADR Banks India 7,200 3.0
AIA Insurance Hong Kong 6,693 2.8
Hyundai Motor - Automobiles & Components South Korea 6,426 2.7
preference shares
Housing Development Banks India 6,252 2.6
Finance
NetEase - ADR Media & Entertainment China 5,793 2.4
ASUSTeK Computer Technology Hardware & Equipment Taiwan 5,687 2.3
Jiangsu Yanghe BreweryA Food, Beverage & Tobacco China 5,613 2.3
China MobileR Telecommunication Services China 5,367 2.2
Mahindra & Mahindra Automobiles & Components India 5,168 2.1
Delta Electronics Technology Hardware & Equipment Taiwan 4,915 2.0
CNOOCR Energy China 4,890 2.0
China Pacific InsuranceH Insurance China 4,866 2.0
Hon Hai Precision Technology Hardware & Equipment Taiwan 4,589 1.9
Industry
Larsen & Toubro Capital Goods India 4,540 1.9
POSCO Materials South Korea 4,169 1.7
Suofeiya Home CollectionA Consumer Durables & Apparel China 3,892 1.6
LG Capital Goods South Korea 3,870 1.6
United Overseas Bank Banks Singapore 3,725 1.6
Aurobindo Pharma Pharmaceuticals, Biotechnology & India 3,566 1.5
Life Sciences
189,975 78.4
Other Investments (27) 52,401 21.6
Total Holdings (52) 242,376 100.0
ADR/ADS: American Depositary Receipts/Shares - are certificates
that represent shares in the relevant stock and are issued by a US bank. They
are denominated and pay dividends in US dollars.
H: H-Shares - shares issued by companies incorporated in the
People's Republic of China (PRC) and listed on the Hong Kong Stock Exchange.
R: Red Chip Holdings - holdings in companies incorporated outside
the PRC, listed on the Hong Kong Stock Exchange, and controlled by PRC entities
by way of direct or indirect shareholding and/or representation on the board.
A: A-shares are shares that denominated in Renminbi and traded on
the Shanghai and Shenzhen stock exchanges.
Governance
Going Concern
The financial statements have been prepared on a going concern basis.
The Directors took into consideration the uncertain economic outlook in the
wake of the Covid-19 pandemic and the operational implications and consider the
preparation of the financial statements on a going concern basis to be the
appropriate basis. The Directors have a reasonable expectation that the Company
has adequate resources to continue in operational existence for the foreseeable
future, being taken as 12 months after signing the balance sheet, for the same
reasons as set out in the Viability Statement in the Company's 2020 annual
financial report. In considering this, the Directors took into account:
. the diversified portfolio of readily realisable securities
which can be used to meet short-term funding commitments;
. the ability of the Company to meet all of its liabilities and
ongoing expenses from its assets; and
. revenue forecasts for the forthcoming year.
As discussed in Principal Risks and Uncertainties, the Company's operations and
those of its core service providers have been adapted to deal with the
restrictions imposed in the UK as a result of the Covid-19 pandemic.
Related Party Transactions
Under United Kingdom Generally Accepted Accounting Practice (UK Accounting
Standards and applicable law), the Company has identified the Directors as
related parties. No other related parties have been identified. No transactions
with related parties have taken place which have materially affected the
financial position or the performance of the Company.
Directors' Responsibility Statement
in respect of the preparation of the half-yearly financial report
The Directors are responsible for preparing the half-yearly financial report
using accounting policies consistent with applicable law and UK Accounting
Standards.
The Directors confirm that to the best of their knowledge:
- the condensed set of financial statements contained within the half-yearly
financial report have been prepared in accordance with the FRC's FRS 104
Interim Financial Reporting;
- the interim management report includes a fair review of the information
required by 4.2.7R and 4.2.8R of the FCA's Disclosure Guidance and Transparency
Rules; and
- the interim management report includes a fair review of the information
required on related party transactions.
The half-yearly financial report has not been audited or reviewed by the
Company's auditor.
Signed on behalf of the Board of Directors.
Neil Rogan
Chairman
25 January 2021
Condensed Income Statement
FOR THE SIX MONTHSED 31 OCTOBER
31 October 2020 31 October 2019
Revenue Capital Total Revenue Capital Total
return return return return return return
£'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on investments held at - 42,366 42,366 - (12,353) (12,353)
fair value
Gains on foreign exchange - 163 163 - 373 373
Income - note 2 3,753 - 3,753 5,045 - 5,045
Investment management fee - note 3 (210) (629) (839) (208) (624) (832)
Other expenses (286) (3) (289) (305) (1) (306)
Net return before finance costs and 3,257 41,897 45,154 4,532 (12,605) (8,073)
taxation
Finance costs - note 3 (13) (39) (52) (9) (28) (37)
Return on ordinary activities before 3,244 41,858 45,102 4,523 (12,633) (8,110)
taxation
Tax on ordinary activities - note 4 (321) - (321) (442) - (442)
Return on ordinary activities after 2,923 41,858 44,781 4,081 (12,633) (8,552)
taxation for the financial period
Return per ordinary share
Basic 4.37p 62.61p 66.98p 5.83p (18.05) (12.22)p
p
Weighted average number of ordinary 66,853,287 69,980,943
shares in issue during the period
The total column of this statement represents the Company's profit and loss
account, prepared in accordance with UK Accounting Standards. The return on
ordinary activities after taxation is the total comprehensive income and
therefore no additional statement of other comprehensive income is presented.
The supplementary revenue and capital columns are presented for information
purposes in accordance with the Statement of Recommended Practice issued by the
Association of Investment Companies. All items in the above statement derive
from continuing operations of the Company. No operations were acquired or
discontinued in the period.
Condensed Statement of Changes in Equity
FOR THE SIX MONTHSED 31 OCTOBER
Capital
Share Redemption Special Capital Revenue
Capital Reserve Reserve Reserve Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
For the six months ended 31 October
2020
At 30 April 2020 7,500 5,624 34,827 134,968 4,029 186,948
Return on ordinary activities - - - 41,858 2,923 44,781
At 31 October 2020 7,500 5,624 34,827 176,826 6,952 231,729
For the six months ended 31 October
2019
At 30 April 2019 7,500 5,624 45,015 163,763 5,473 227,375
Return on ordinary activities - - - (12,633) 4,081 (8,552)
Dividends paid - note 5 - - - - (2,028) (2,028)
Shares bought back and held in - - (2,752) - - (2,752)
treasury
At 31 October 2019 7,500 5,624 42,263 151,130 7,526 214,043
Condensed Balance Sheet
Registered Number 3011768
At At
31 October 30 April
2020 2020
£'000 £'000
Fixed assets
Investments held at fair value through profit or loss - note 7 242,376 195,915
Current assets
Tax recoverable 228 145
VAT recoverable 23 24
Prepayments and accrued income 164 272
Cash and cash equivalents 316 1,623
731 2,064
Creditors: amounts falling due within one year
Bank overdraft (318) -
Bank facility (8,839) (10,354)
Amounts due to brokers (1,579) (112)
Accruals (642) (565)
(11,378) (11,031)
Net current liabilities (10,647) (8,967)
Net assets 231,729 186,948
Capital and reserves
Share capital 7,500 7,500
Other reserves:
Capital redemption reserve 5,624 5,624
Special reserve 34,827 34,827
Capital reserve 176,826 134,968
Revenue reserve 6,952 4,029
Total shareholders' funds 231,729 186,948
Net asset value per ordinary share
Basic 346.62p 279.64p
Number of 10p ordinary shares in issue at the period end - note 66,853,287 66,853,287
6
Notes to the Financial Condensed Statements
1. Accounting Policies
The condensed financial statements have been prepared in accordance with
applicable United Kingdom Accounting Standards and applicable law (UK Generally
Accepted Accounting Practice), including FRS 102 The Financial Reporting
Standard applicable in the UK and Republic of Ireland, FRS 104 Interim
Financial Reporting and the Statement of Recommended Practice Financial
Statements of Investment Trust Companies and Venture Capital Trusts, issued by
the Association of Investment Companies in October 2019. The financial
statements are issued on a going concern basis.
The accounting policies applied to these condensed financial statements are
consistent with those applied in the financial statements for the year ended 30
April 2020.
2. Income
Six months to Six months to
31 October 31 October
2020 2019
£'000 £'000
Income from investments
Overseas dividends - ordinary 3,605 4,931
- special 148 107
Deposit interest - 7
Total income 3,753 5,045
No special dividends have been recognised in capital during the period (31
October 2019: £nil).
3. Management Fee and Finance costs
Investment management fee and finance costs on any borrowings are charged 75%
to capital and 25% to revenue. A management fee is payable quarterly in arrears
and is equal to 0.75% per annum of the value of the Company's total assets less
current liabilities (including any short term borrowings) under management at
the end of the relevant quarter and 0.65% per annum for any net assets over £
250 million.
4. Taxation and Investment Trust Status
It is the intention of the Directors to conduct the affairs of the Company so
that it satisfies the conditions for approval as an investment trust company.
As such, no tax liability arises on capital gains. The tax charge represents
withholding tax suffered on overseas income.
5. Dividends paid on Ordinary Shares
As noted in the Chairman's Statement, an interim dividend of 6.70p per share
was paid on 26 November 2020 to shareholders on the register on 6 November
2020. Shares were marked ex-dividend on 5 November 2020.
In accordance with accounting standards, dividends payable after the period end
have not been recognised as a liability.
6. Share Capital, including Movements
(a) Ordinary Shares of 10p each
Six months to Year to
31 October 30 April
2020 2020
Number of ordinary shares:
Brought forward 66,853,287 70,469,475
Shares bought back into - (3,616,188)
treasury
Carried forward 66,853,287 66,853,287
(b) Treasury Shares
Six months to Year to
31 October 30 April
2020 2020
Number of treasury shares:
Brought forward 8,146,594 4,530,406
Shares bought back into - 3,616,188
treasury
Carried forward 8,146,594 8,146,594
Ordinary shares in issue 74,999,881 74,999,881
(including treasury)
Subsequent to the period end nil shares were bought back.
7. Classification Under Fair Value Hierarchy
FRS 102 sets out three fair value levels. These are:
Level 1 - The unadjusted quoted price in an active market for identical assets
that the entity can access at the measurement date.
Level 2 - Inputs other than quoted prices included within Level 1 that are
observable (i.e. developed using market data) for the asset or liability,
either directly or indirectly.
Level 3 - Inputs are unobservable (i.e. for which market data is unavailable)
for the asset or liability.
The fair value hierarchy analysis for investments held at fair value at the
period end is as follows:
31 October 30 April
2020 2020
£'000 £'000
Financial assets designated
at fair value
Level 1 242,248 195,054
Level 2 - 738
Level 3 128 123
Total for financial assets 242,376 195,915
The Level 3 investment consists of one holding in Lime Co. (30 April 2020: Lime
Co.).
8. Status of Half-Yearly Financial Report
The financial information contained in this half-yearly report does not
constitute statutory accounts as defined in section 434 of the Companies Act
2006. The financial information for the half years ended 31 October 2020 and 31
October 2019 has not been audited. The figures and financial information for
the year ended 30 April 2020 are extracted and abridged from the latest audited
accounts and do not constitute the statutory accounts for that year. Those
accounts have been delivered to the Registrar of Companies and included the
Report of the Independent Auditor, which was unqualified and did not include a
statement under section 498 of the Companies Act 2006.
By order of the Board
Invesco Asset Management Limited
Company Secretary
25 January 2021
Glossary of Terms and Alternative Performance Measures
Alternative Performance Measure (APM)
An APM is a measure of performance or financial position that is not defined in
applicable accounting standards and cannot be directly derived from the
financial statements. The calculations shown in the corresponding tables are
for the six months ended 31 October 2020, the six months ended 31 October 2019
and the year ended 30 April 2020. The APMs listed here are widely used in
reporting within the investment company sector and consequently aid
comparability.
Benchmark (or Benchmark Index)
A standard against which performance can be measured, usually an index that
averages the performance of companies in a stock market or a segment of the
market. The benchmark used in these accounts is the MSCI AC Asia ex Japan
Index. This benchmark index does not include Australia and New Zealand.
Discount/Premium (APM)
Discount is a measure of the amount by which the mid-market price of an
investment company share is lower than the underlying net asset value (NAV) of
that share. Conversely, Premium is a measure of the amount by which the
mid-market price of an investment company share is higher than the underlying
net asset value of that share. In this interim financial report the discount is
expressed as a percentage of the net asset value per share and is calculated
according to the formula set out below. If the shares are trading at a premium
the result of the below calculation will be positive and if they are trading at
a discount it will be negative.
At 31 October At 30 April
Page 2020 2020
Share price 1 a 304.50p 254.00p
Net asset value per share - cum income 1 b 346.62p 279.64p
Discount - cum income c = (a-b)/ (12.2)% (9.2)%
b
The average discount for the period/year is the arithmetic average, over a
period/year, of the daily discount calculated on the same basis as shown above.
Gearing
The gearing percentage reflects the amount of borrowings that a company has
invested. This figure indicates the extra amount by which net assets, or
shareholders' funds, would move if the value of a company's investments were to
rise or fall. A positive percentage indicates the extent to which net assets
are geared; a nil gearing percentage, or 'nil', shows a company is ungeared. A
negative percentage indicates that a company is not fully invested and is
holding net cash as described below.
There are several methods of calculating gearing and the following has been
used in this report:
Gross Gearing (APM)
This reflects the amount of gross borrowings in use by a company and takes no
account of any cash balances. It is based on gross borrowings as a percentage
of net assets.
At 31 At 30 April
October
2020 2020
Page £'000 £'000
Bank overdraft 13 318 -
Bank facility 13 8,839 10,354
Gross borrowings a 9,157 10,354
Net asset value 13 b 231,729 186,948
Gross gearing c = a/b 4.0% 5.5%
Net Gearing or Net Cash (APM)
Net gearing reflects the amount of net borrowings invested, i.e. borrowings
less cash and cash equivalents (incl. investments in money market funds). It is
based on net borrowings as a percentage of net assets. Net cash reflects the
net exposure to cash and cash equivalents, as a percentage of net assets, after
any offset against total borrowings.
At 31 At 30 April
October
2020 2020
Page £'000 £'000
Bank overdraft 13 318 -
Bank facility 13 8,839 10,354
Less: cash and cash equivalents 13 (316) (1,623)
Less: Invesco Liquidity Fund - US Dollar - (738)
(money market fund)
Net borrowings a 8,841 7,993
Net asset value 13 b 231,729 186,948
Net gearing c = a/b 3.8% 4.3%
Net Asset Value (NAV)
Also described as shareholders' funds the NAV is the value of total assets less
liabilities. Liabilities for this purpose include current and long-term
liabilities. The NAV per ordinary share is calculated by dividing the net
assets by the number of ordinary shares in issue. For accounting purposes
assets are valued at fair (usually market) value and liabilities are valued at
par (their repayment - often nominal - value).
Total Return
Total return is the theoretical return to shareholders that measures the
combined effect of any dividends paid, together with the rise or fall in the
share price or NAV. In this half-yearly financial report these return figures
have been sourced from Refinitiv who calculate returns on an industry
comparative basis.
Net Asset Value Total Return (APM)
Total return on net asset value per share, assuming dividends paid by the
Company were reinvested into the shares of the Company at the NAV per share at
the time the shares were quoted ex-dividend.
Share Price Total Return (APM)
Total return to shareholders, on a mid-market price basis, assuming all
dividends received were reinvested, without transaction costs, into the shares
of the Company at the time the shares were quoted ex-dividend.
Net Asset Share
Six Months Ended 31 October 2020 Page Value Price
As at 31 October 2020 1 346.62p 304.50p
As at 30 April 2020 1 279.64p 254.00p
Change in period a 24.0% 19.9%
Impact of dividend reinvestments(1) b 0.0% 0.0%
Total return for the period c = a+b 24.0% 19.9%
Net Asset Share
Six Months Ended 31 October 2019 Value Price
As at 31 October 2019 307.98p 268.00p
As at 30 April 2019 322.66p 294.00p
Change in period a -4.5% -8.8%
Impact of dividend reinvestments(1) b 0.8% 2.1%
Total return for the period c = a+b -3.7% -6.7%
(1) No dividends have been paid during six months to 31 October 2020 (31
October 2019: 2.90p reinvested at the NAV or share price on the ex-dividend
date). NAV or share price falls subsequent to the reinvestment date
consequently further reduce the returns, vice versa if NAV or share price
rises.
Benchmark
Total return on the benchmark is on a mid-market value basis, assuming all
dividends (net of withholding tax) received were reinvested, without
transaction costs, into the shares of the underlying companies at the time the
shares were quoted ex-dividend.
END
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January 25, 2021 06:24 ET (11:24 GMT)
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