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Investment Trust

Schroder Oriental Income Fund

Elite Rated by FundCalibre

Launched in 2005, the Schroder Oriental Income Fund aims to provide income and capital growth by investing in Asia Pacific companies (excluding Japan, but including Australia and New Zealand) that offer attractive yields and growing dividend payments.

Investment Manager

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Schroders is the investment company employed to manage this trust. Founded in London in 1804, today Schroders operates in more than 25 countries, employing more than 3,500 people, close to the markets in which they invest. Schroders is listed on the London Stock Exchange and invests in a range of asset classes including equity, fixed income, multi-asset and alternatives.

The trust has been run by the charismatic Matthew Dobbs since launch in 2005. He joined Schroders as an analyst in 1981 and also manages the Elite Rated Schroder Asian Alpha Plus fund. He is hugely experienced and is supported by one of the best-resourced analyst teams.

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Having run Asian equities for over three decades, it is lucky I am a big fan of jigsaws – the tougher the better!

Matthew Dobbs - Trust Manager

Investment Trust Board

The trust’s board comprises four members and is headed by Robert Sinclair as chairperson. Robert is the managing director of Artemis Trustees and has 43 years of experience in finance, of which 33 have been spent in the Guernsey financial services industry (where the trust is based) He is a director of a number of fund management companies. The other three board members are Fergus Dunlop, Paul Meader and Peter Rigg, who have more than 75 years of financial services and investment company experience between them.

The Investment Process

Matthew’s investment process and philosophy is consistent across the various funds and trusts he runs. He believes long-term returns are driven by valuation considerations, but he is willing to exploit other opportunities if the investment case is strong enough. Ideas are sourced from Schroders’ huge regional analyst team, brokers and Matthew himself. He then invests in the best 60 to 80 non-consensus ideas. Matthew will also consider other, more qualitative factors, such as barriers to entry and strength of management.

Risk

In general, income-oriented investments tend to be lower risk than those that are growth-focused and the same is true here. Matthew’s disciplined and detailed stock research and selection process ensures that the portfolio is well diversified, which also helps to reduce the risk in these more volatile markets. Movement in currencies is an additional risk that investors should take into account.

Gearing

The portfolio manager sets the gearing of the company, in conjunction with the board, who monitor the level closely. The maximum gearing allowed is 25%. Matthew has a revolving multi-currency credit line of £50 million at his disposal, but the gearing since 2007, which stood at around 12%, has not exceeded 6% since. Matthew is extremely careful with gearing and will not use it to increase the risk of the portfolio. He will only borrow if he sees an exceptional investment opportunity, as he believes that gearing can be a double-edged sword.

Share price discount/premium

This is a sought-after trust and for the majority of the last ten years (to 31 August 2016) the shares have traded at net asset value (NAV) or at a small premium to NAV. The board does not have a specified discount control mechanism; however, they do actively monitor the share price versus NAV and, in the past, have issued shares to control the premium.

Our Opinion

We like the relative stability that the income focus offers this trust versus many others in the region, especially when paired with the manager’s total return mindset. Matthew’s experience, combined with the strength and depth of Schroders’ analyst team, also make the trust stand out from its peers. We believe it is an excellent option for investors seeking exposure to the Asia Pacific region with both an income and a growth objective.

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