What is your background and your role in the investment trust?
My name’s Sat Duhra. I’m the fund manager for Henderson Far East. And I manage the portfolio. I’m based in Singapore, and I look for new ideas. We invest across Asia Pacific, along with a team of analysts in Singapore. My background is predominantly in finance, so I started off doing my Chartered Accountancy after an economics degree, and then I went to work for an investment bank. I’ve also worked on the sales side, and I’ve been at Janus Henderson for almost 15 years.
What are the trust’s investment objectives?
So, the objective is to grow the dividend per share every year and, alongside that, to seek capital growth from Asia Pacific markets. And we invest in a wide range of markets. You have the more developed side of Asia, which is Australia, Singapore, Hong Kong, and then you have some
more kind of emerging exposures. For example, the likes of Indonesia; India’s a very interesting market for us as well. We’ve recently added the Philippines, so we have quite a wide range, diverse exposure across Asia Pacific.
How does the trust generate income?
So, we found that over the years, the number of companies paying dividends and having a formal dividend policy has increased. There’s also been a very strong corporate reform programme across markets such as Korea and China. We recently had a sovereign wealth fund in Indonesia which is pushing the dividends higher for those companies. So many, many things across our region that are driving dividends higher. So, the way we generate income is to invest in many of those companies. Firstly, they have high dividend yield anyway, but we’re seeing very large positive surprises across a number of those markets. And then, alongside that, we own some more growth exposures, for example, in technology. And there we use option overwriting to generate option premium as well. So if you combine that together, those are the things that generate our high income, year on year.
How would you describe the investment process? And can you talk to us through how you generate an idea for the investment trust?
Yeah, so our valuation process is very much to do with value and income. Which means that we focus more on cash flow. So, there’s a number of things we use; we have our own models that look at free cash flow generation. We discount those back to generate valuation. And then we also use CFROI, which is the cash flow return on investment. So all of these things mean that we focus on the cash-generating ability of corporates in Asia. And if they can do that and we can find value in those particular names, then we think they will surprise positively on dividends as well. So that’s a really core part of it: is looking at models, going through the numbers. It’s also meeting companies, it’s going out to the region. So in the last couple of months I’ve been to Thailand, I’ve been to Indonesia, I’ve been to the Philippines. The rest of the team are travelling widely in many other parts. North Asia, Australia, and so on as well. So meeting companies that generates ideas,
doing some screens which filter out companies with high free cash flow yield, and so on. That’s very important. Speaking to team members, we have a wide pool of analysts in Singapore. We also have analysts based in the U.S., in Europe, and so on, and they give us ideas as well, so we work in collaboration with other people within the firm as well. And then obviously we have analysts who we meet regularly. We have corporates coming through to Singapore. We meet them on a regular basis, so I would say there isn’t a particular way of generating an idea. It comes together through all of those different means, and then once we have that, we put it through our evaluation process and then we have the complete idea to go into the portfolio.
What investment themes are exciting in your region and how are you positioned to capture them?
Yeah, that’s a good question because we have spent quite a lot of time over the last 18 months repositioning the portfolio so that we are exposed to some of the best growth themes, not just in Asia, but we think globally. So we’ve maintained the income, but we’ve repositioned away from more cyclical names, repositioned a little bit away from China, and added some great, great exposure in India, for example, or Taiwan or even Korea with corporate reform. So in our view right now, some of the most exciting themes, not just in Asia. But globally, are the technology supply chains in Asia. So for example, if you think about the U.S. companies, they need the semiconductors from Taiwan, they need the manufacturing of servers, they need the chip design, All of that kind of thing happens in our markets and the likes of Korea, Taiwan, and so on. And then we have financial inclusion. We have a great number of banks that are growing very strongly. So across markets such as the Philippines, India, Indonesia, there’s been hundreds of millions of bank accounts opened over the last decade. That creates great opportunities for these banks. And then we have wealth management, which is also. Wealth, part of financial inclusion. So Singapore banks, HSBC, those kinds of more developed market exposures, they are increasing exposure to wealth management as well, and that’s a real driver as well. So financial inclusion, technology supply chains, corporate reform which I touched upon earlier. Regulators, governments in Korea, in China, in Indonesia, are pushing for more dividends from companies as well. So, outside of Japan, one of the best themes globally is infrastructure build-up again, a very strong theme. You think about India, the gas pipelines, the grids, and so on. In China, we have exposure to that and we have exposure to domestic consumption companies going international. So those are the five best themes and most exciting themes that we see in Asia today.