Invesco Asia Trust — Combination to create the ‘go-to’ Asian trust

Invesco Asia Trust (LSE: IAT)

Last close As at 20/11/2024

GBP3.40

3.00 (0.89%)

Market capitalisation

GBP222m

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Research: Investment Companies

Invesco Asia Trust — Combination to create the ‘go-to’ Asian trust

Invesco Asia Trust (IAT) today announced the combination with Asia Dragon Trust (DGN), involving the transfer of certain assets of the latter to IAT in exchange for new IAT shares through a scheme of reconstruction and wind-up of DGN, with the new entity renamed Invesco Asia Dragon Trust. Investors in both trusts will benefit from IAT’s investment strategy with a proven track record, greater economies of scale, a new attractive fee structure, as well as an unconditional tender offer for up to 100% of the issued share capital conducted every three years.

Milosz Papst

Written by

Milosz Papst

Head of Content, Investment Trusts

Investment Companies

Invesco Asia Trust

Combination to create the ‘go-to’ Asian trust

Investment trusts
Asia ex-Japan equities

28 October 2024

Price

318p

Market cap

£215m

NAV

£256m

NAV*

382.6p

Discount to NAV

13.2%

NAV**

387.9p

Discount to NAV

14.4%

*Excluding income. **Including income. As at 25 October 2024.

Yield

4.6%

Ordinary shares in issue

64.9m

Code/ISIN

IAT/GB0004535307

Primary exchange

LSE

AIC sector

Asia Pacific ex-Japan

Benchmark

MSCI AC Asia ex-Japan

52-week high/low

358.0p

286.0p

407.9p

318.8p

*Including income

Gearing

Net cash at 30 Sep 2024

0.8%

Fund objective

Invesco Asia Trust’s objective is to provide longterm capital growth by investing in a diversified portfolio of Asian companies. On 1 May 2015, the trust adopted a new benchmark, MSCI AC Asia exJapan, in place of the former benchmark, MSCI AC Asia Pacific ex-Japan. While the benchmark excludes Australasia, the trust may still invest in these markets.

Bull points

IAT’s contrarian, valuation-cautious approach may prove well-suited for exploiting the current valuation discrepancies across Asian markets.

Strong track record of manager Ian Hargreaves, coupled with the expertise of Fiona Yang and a team of Asia investment specialists.

A combination with Asian Dragon Trust would translate into economies of scale, an attractive fee and discount control mechanisms.

Bear points

IAT’s high weighting to China vs peer average may have an impact on returns if structural issues affecting China’s economy persist.

Relatively high income means that the mandate may lag growth-focused peers in rising markets.

Emerging Asia’s long-term growth may be dampened by weaker investments and exports.

Analyst

Milosz Papst

+44(0)20 3077 5700

Invesco Asia Trust is a research client of Edison Investment Research Limited

Invesco Asia Trust (IAT) today announced the combination with Asia Dragon Trust (DGN), involving the transfer of certain assets of the latter to IAT in exchange for new IAT shares through a scheme of reconstruction and wind-up of DGN, with the new entity renamed Invesco Asia Dragon Trust. Investors in both trusts will benefit from IAT’s investment strategy with a proven track record, greater economies of scale, a new attractive fee structure, as well as an unconditional tender offer for up to 100% of the issued share capital conducted every three years.

Maintaining IAT’s successful contrarian approach

The enlarged entity will be managed by IAT’s current investment manager pursuing the same successful contrarian total return (TR) strategy looking for mispriced, quality Asian/Australasian equities with strong balance sheets. IAT’s managers will utilise the combined portfolio of more than £800m (based on current asset values) to exploit the current valuation disparities across Asian markets, discussed in our previous note. The larger trust’s size will also result in higher stock liquidity and the potential for inclusion in the UK flagship top 250 equity index. Furthermore, the trust will maintain IAT’s dividend policy of paying 4% of NAV, and move from semi-annual to quarterly payments. IAT board’s intention is to pay out 7.80p per share next month, with the subsequent two quarterly dividends at 3.90p per share.

New tiered management fee

Invesco Asia Dragon Trust will be subject to a new tiered management fee: 0.75% on the first £125m of NAV, 0.60% on £125–450m, and 0.50% above £450m. The significant size and new fee structure will allow the trust to target an attractive ongoing charges ratio of less than 70bp in future financial years (vs 103bp and 91bp for IAT and DGN in their last financial years, respectively). Moreover, IAT’s investment manager will make a ‘significant contribution’ to help absorb the costs associated with the combination, thus avoiding any NAV dilution.

Extensive discount control mechanisms

DGN’s shareholders will have an option of a partial cash exit for up to 25% of DGN’s issued share capital at a 2% discount to the formula asset value per share. General shareholder meetings to approve the deal are expected in early February 2025, and the transaction should be concluded shortly thereafter.

Subsequently, the trust will maintain IAT’s target of an average discount to cum-income NAV of below 10% over each financial year and conduct share buybacks accordingly. Moreover, it will be subject to a triennial unconditional tender offer for up to 100% of the issued share capital at a 4% discount to prevailing NAV (first tender expected in 2028), which we believe represents a strong commitment to narrowing the discount to NAV. This will replace IAT’s current triennial continuation vote, as well as its performance-related conditional tender offer of up to 25% of IAT’s issued share capital in the event IAT fails to outperform its benchmark by 0.5pp over the five years to end-April 2025. In this context, we note that IAT’s four-year NAV TR to end-April 2024 of 11.0% pa was well ahead of the benchmark at 4.5%.

General disclaimer and copyright

This report has been commissioned by Invesco Asia Trust and prepared and issued by Edison, in consideration of a fee payable by Invesco Asia Trust. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Invesco Asia Trust and prepared and issued by Edison, in consideration of a fee payable by Invesco Asia Trust. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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