Income Rating 2025: Invesco Asia Dragon

IAD’s contrarian approach is benefitting from Asia’s changing dynamics…by Ryan Lightfoot-Aminoff

Overview

After winning the ‘beauty parade’ to take on the assets of Asia Dragon, Fiona Yang and Ian Hargreaves, managers of the newly renamed Invesco Asia Dragon (IAD), now have a considerable £817m of net assets under management, making IAD the largest trust (by net assets) in the Asian Equity Income sector, which will bring significantly increased liquidity.

One of the key factors behind Fiona and Ian winning the mandate was their consistent track record in outperforming in a variety of market backdrops. Their bottom-up investment approach has meant that stock selection has helped generate alpha throughout the investment cycle, contributing to long-term outperformance of the trust’s benchmark. Furthermore, their contrarian approach has been particularly beneficial in the near term. The managers note that a significant portion of returns come in the early part of a market rally, which they are typically well placed to capture due to their contrarian positioning. This can be seen in the strong Performance over the past year, following the sharp reversals in key markets in the region seen before the Trump volatility hit, such as the recovery in China and end of the bull market in India. This has led to significant dispersion of returns across different countries in the region, which the managers have successfully capitalised on.

Not only should this corporate activity likely lead to a promotion to the FTSE 250 and therefore greater liquidity, but the board has also used the opportunity afforded to them to make other changes with the aim of increasing the trust’s appeal. This includes lower Charges, and more frequent Dividend distributions.

Analyst’s View

 
Ian and Fiona’s contrarian approach means IAD offers an attractive and differentiated option for core long-term Asian equity exposure, with the strong Performance in late 2024 and early 2025 demonstrating the potential of the strategy. The contrarian approach has helped the managers steer the portfolio through some significant volatility in recent years, and outperform in a variety of market environments. We think the focus on valuation could prove particularly helpful in what looks likely to be another volatile year, whilst the approach has demonstrated an ability to capture the early part of market rebounds – an attractive quality after the losses in markets post-‘Liberation Day’.

It’s no surprise to us that the board of Asia Dragon opted to merge and form IAD, given the track record and the potential of the strategy. The merger brings clear benefits, which have further improved the investment case for the trust, in our opinion. The increase in assets will lead to greater liquidity and a likely promotion to the FTSE 250, potentially putting the trust on the radar of new institutional investors. It will also likely lead to lower Charges.

The recent volatility seen in markets could arguably provide the managers with a good opportunity to exercise their valuation discipline. Following the announcement of the tariffs, markets have fallen globally, with Asia being particularly hard hit. As such, even the highest quality companies will be trading at more compelling valuations, which Fiona and Ian are likely to be able to take advantage of due to their flexibility and valuation discipline. Furthermore, the trust’s ongoing Discount to NAV further adds to the upside potential, in our view.

Bull

• Long-term outperformance as a result of stock selection, generated in a variety of market conditions
• Corporate activity has led to a larger, more liquid trust, with lower fees
• Trust continues to trade at a sizeable discount to NAV

Bear

• Trust could underperform should one factor drive markets for a sustained period
• Following changes in the peer group, IAD’s dividend is below the average of the income sector
• Potential overhang of DGN shareholders could have negative impact on discount

See the latest research on IAD here >

^Disclaimer

^{Disclosure – Non-Independent Marketing Communication}

^{This is a non-independent marketing communication commissioned by Invesco Asia Dragon (IAD). The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.}