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Annual General Meeting Presentation 2021

Fund manager Richard Sennitt presented on the fund as part of the Annual General Meeting for 2021. A copy of the slides used in the event can be downloaded here.

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Q3 2021 Commentary

Performance overview

Asia ex-Japan equities recorded a sharply negative return in the third quarter, in sterling terms, largely driven by a significant sell-off in China. This was partially due to concerns over the ability of property group Evergrande to service its debts.
Market concerns over inflation and interest rates also dampened investor confidence. China was the worst-performing index market amid a regulatory crackdown including on the education and technology sectors.
Hong Kong and South Korea followed China, with both markets sharply lower as jitters spilled out into the wider region. Australia was down a little, but it materially outperformed the benchmark index.Indonesia was the strongest-performing market.
The fund produced a negative return, but significantly outperformed the MSCI AC Pacific ex Japan index over the month

Drivers of fund performance

The fund benefited from positive stock selection and country allocation.
At the regional level, country allocation was the principal driver of the fund’s positive relative returns. The underweighting of China and, to a lesser extent, the overweight exposure to Singapore was beneficial to returns. Positive stock selection was mainly driven by our Chinese and Korean holdings.
At the sector level, stock selection was strong, notably so in communication services. Sector allocation was also positive, with the underweighting of consumer discretionary proving to be beneficial. The lack of exposure to the Chinese internet names was a significant positive.

Outlook/positioning

The continued uptick in inflationary pressures globally and some doubts about the sustainability of growth have resulted in a more negative, potentially ‘stagflationary’ outlook for economies.
Chinese listed equities have confronted headwinds this year – notably the regulatory clampdown, the potential Evergrande default and a slowing economic recovery. Given the opacity of the authorities’ decision-making process, only time will tell how radical a reworking of corporate China may be underway.
Although initially regulatory announcements in China were focussed mainly on the internet and education sectors they have broadened out more recently and we continue to remain underweight China.
There is still a lot of uncertainty as to where near term dividend payments will go given the path of Covid-19. Renewed outbreaks and relatively lower vaccination rates across much of Asia naturally warrant caution. All that said we still believe that in most cases this is more a matter of timing rather than these companies’ ability to pay. In the medium to long term dividends tend to follow earnings and we are starting to see earnings recover.
In terms of portfolio strategy, we maintain a bottom-up investment approach and we continue to look for good companies where we can see a strong income case and potential for capital growth.

Discrete yearly performance (%)

	May 12 – May 13	May 13 – May 14	May 14 – May 15	May 15 – May 16	May 16 – May 17	May 17 – May 18	May 18 – May 19	May 19 – May 20	May 20 - May 21	May 21- May 22
Share Price	37.5	-7.0	16.0	-4.6	37.3	7.2	0.8	-14.6	44.8	-0.3
Net Asset Value	-	-	-	-	-	10.3	0.2	-8.0	35.6	2.7
Reference Index	22.6	-2.0	15.3	-12.1	41.8	13.4	-5.1	2.1	30.1	-11.0

Past Performance is not a guide to future performance and may not be repeated.
The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. Exchange rate changes may cause the value of any overseas investments to rise or fall. Some performance differences between the fund and the index may arise because the fund performance is calculated at a different valuation point from the index.

Source: Morningstar, net income reinvested, net of ongoing charges and portfolio costs and where applicable, performance fees, in GBP.

For help in understanding any terms used, please visit our glossary.

What are the risks?

Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.

Investors in the emerging markets and the Far East should be aware that this involves a high degree of risk and should be seen as long term in nature. Less developed markets are generally less well regulated than the UK, they may be less liquid and may have less reliable arrangements for trading and settlement of the underlying holdings.

The Company invests in smaller companies that may be less liquid than in larger companies and price swings may therefore be greater than investment trusts, companies and funds that invest in larger companies.

The Company holds investments denominated in currencies other than sterling, investors should note that exchange rates may cause the value of these investments, and the income from them, to rise or fall.

The Company may borrow money to invest in further investments, this is known as gearing. Gearing will increase returns if the value of the investments purchased increase in value by more than the cost of borrowing, or reduce returns if they fail to do so.

Investment in warrants, participation certificates, guaranteed bonds, etc will expose the fund to the risk of the issuer of these instruments defaulting. Deducting charges from capital can result in the income paid by the company being higher than would otherwise be the case and the growth in the capital sum being eroded.

As a result of the fees being charged partially to capital, the distributable income of the Company may be higher, but the capital value of the Company may be eroded.

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Please remember that the value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

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Issued by Schroder Unit Trusts Limited, 1 London Wall Place, London EC2Y 5AU. Registered Number 4191730 England.

Schroder Unit Trusts Limited is an authorised corporate director, authorised unit trust manager and an ISA plan manager, and is authorised and regulated by the Financial Conduct Authority.

On 17 September 2018 our remaining dual priced funds converted to single pricing and a list of the funds affected can be found in our Changes to Funds. To view historic dual prices from the launch date to 14 September 2018 click on Historic prices.

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Schroder Oriental Income Fund Limited

"While by no means universal, many Asian companies are increasingly focused on dividends as a substantial contributor to shareholder returns."

Richard Sennitt

Fund Manager