Liontrust Asia Income Fund

August 2018 portfolio changes

  • Sold – Kingboard Laminates. Despite remaining a well-managed company at a decent valuation, Kingboard Laminates is one of the more vulnerable of our holdings to a protracted trade war with the United States. Its domestic Chinese production (it is the largest producer of copper clad laminates in China) is used in printed circuit boards, and they are directly subject to US sanctions, with alternative sources available from other countries. Although our view remains that the trade dispute is political posturing rather something that will be allowed to fester for the longer term, it has already extended beyond our initial expectations. Kingboard is one of the few companies which we hold that appears vulnerable in the current environment.
  • Sold – Hutchison Port Holdings Trust. New shipping alliances have formed which has led to industry consolidation and service rationalisation. HPHT’s Hong Kong port is largely exposed to transhipment volumes where tariff rates have been under constant pressure as shipping companies focus on controlling costs and improving efficiency, and recent results reflect HPHT’s lack of bargaining power. The stock has a high 9% dividend yield, but guidance on future dividends has been lowered due to the need to focus on repaying its entirely floating-rate debt pile. We believe we can find alternative investments offering a better combination of growth with a decent yield.
  • Bought – BOC Aviation. The company is Asia’s leading aircraft leasing company and in the top five globally. The aircraft leasing industry is a strong proxy to air travel growth, offering more consistent earnings than airlines, with fewer risks and double digit returns on equity. BOC Aviation benefits from a strong order book, access to cheap financing and an experienced management team. Its shares trade on a forward price/book of 1.0x and a forward price/earnings of 7x; it has forecast earnings per share growth of over 10% and a return on equity of 15%. Its dividend yield is more than 4.5% and the company has also announced its intention to increase the dividend payout ratio from 30% to 35%.
  • Bought Lee & Man Paper. The company is the second largest containerboard manufacturer in China and ranks within the top five globally. Lee & Man is a beneficiary of industry consolidation, tighter environmental regulations and import quotas. Demand should be underpinned by an increase in China’s relatively low paper consumption per capita. Compared to its peers, Lee & Man is a low cost producer due to its product mix, vertical integration and economies of scale. It has diverse source of supply for its key raw material, Recovered Paper, with 35% sourced domestically, 33% from the US, 28% from Europe and 5% from Japan. The shares trade on a 2018 price/earnings ratio of 6x, with a dividend yield of 5%. 

Key Risks 

Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. Investment in Funds managed by the Asia team involves foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The Fund’s expenses are charged to capital. This has the effect of increasing dividends while constraining capital appreciation.  

Disclaimer

The information and opinions provided should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing. 

Wednesday, September 12, 2018, 10:30 AM