BLOG: Asia could be the long-term solution to income challenges
Many people like to earn an income from their investments, especially those in or nearing retirement, as it can help to meet their everyday financial needs.
And in the UK, a popular source of income traditionally has been via dividends paid by companies. In fact, so strong is our dividend-paying culture, that UK equity income funds – funds that focus on companies that pay said dividends – are often the core of an investment portfolio.
But investing purely in the UK can carry some risks, as a relatively small number of British companies pay most of the dividends: less than 10 stocks accounted for 50% of total dividends paid last year – what if one suddenly stops paying?
Investors looking to diversify away from the UK for income may like to consider Asia.
Despite traditionally being stereotyped as the place to go for investment growth, dividends paid by companies there have also increased: there also 50 companies in the MSCI Asia Pacific ex Japan index account for half the total dividends – offering a lot more choice.
If you are still sitting on the fence, here are a few more reasons to consider Asia as an income alternative:
- It is home to around two-thirds of the world’s population (4.6 billion), with large working populations which continue to underpin economies.
- It has a growing middle-class and more high net worth individuals in the region than any other.
- Asia paid out record dividends of £133.3bn in 2018, according to the Henderson Global Dividend Index. An increase of 31% in the last three years ($101.9bn in 2015).
- Asia accounted for 12% of all global dividends in 2018 (vs. 8% for the UK).
Below are three funds to consider for those looking to invest in Asia for income:
Guinness Asian Equity Income
Managed by Edmund Harriss and Mark Hammonds since its launch in 2013, this fund is different because it invests in 36 companies, and each position is equally weighted. This, together with their one-in, one-out policy, means each stock can make a meaningful contribution to performance.
Schroder Asian Income
This fund has been run by Richard Sennitt since 2001 and invests in 60-80 companies, the majority of which are currently larger firms. The fund’s largest country holding is currently Hong Kong (21.6%), followed by Australia (16%) then China (15.7%).
Jupiter Asian Income
This fund is run by Jason Pidcock, who is highly regarded as an Asian income specialist. He targets large companies with reliable dividends that can deliver both income and growth for investors. The fund’s typically higher developed market holdings, notably in Australia, tend to make it a relatively defensive Asia Pacific option.
Darius McDermott is managing director of FundCalibre