After the China-induced market correction of 2015 Asian equities are making a comeback, and one of their great exponents, Jupiter’s Jason Pidcock, believes they will be an excellent source of dividend income in the low-return investment world.
So much so that Pidcock recently launched the open-ended Jupiter Asia Pacific Income Sicav, a mirror fund to a same named fund he launched in March, targeted at family offices, advisory money, discretionary managers and banks everywhere.
One of the key reasons Pidcock says Asia is the place for an income fund is that valuations are still good and quality companies across the region now have a long track record of paying dividends.
“For Asia as a whole, the average dividend payout ratio has been about 40% since 2001,” he says. “The dividend-paying culture is very entrenched in most countries in the region. The exceptions are India and South Korea; and in the Philippines, where there are not many high-yielding large-cap liquid stocks.”
The big sell-off in emerging markets, which followed the surprise devaluation of the Chinese yuan in August last year and a further slide in the currency at the start of this year, has also contributed to making Asian stock more appealing on a valuation basis, Pidcock says.
“Share prices came down and currencies, by and large, fell, so the low point this year, which was in February, was three weeks before we launched our unit trust. We very nearly picked the perfect time.
“At that point, shares were looking cheap in Asia, because they had been de-rated massively. Whether it’s price to book or dividend yield versus bond yields, it was attractive.”
Buy and hold approach
Pidcock’s investment approach is very much that of a traditional buy and hold investor rather than a stock trader. He likes well managed companies that are well positioned within their market, and with a scaleable and sustainable business model.
He says the fund’s total returns will typically come from a combination of both dividends and capital growth, and while yield is a crucial part of his company assessment, he also looks at stock valuation metrics such as P/E ratios and price to book.
“I do not make any use of derivatives, I don’t do any currency edging, I don’t use gearing and turnover is low. Cash levels will always be low,” he says.