Schroder Oriental Income Fund Limited
Half year report for the six months ended 28 February 2025
Schroder Oriental Income Fund Limited (the “Company”) hereby submits its half year report for the six months ended 28 February 2025 as required by the Financial Conduct Authority’s Disclosure Guidance and Transparency Rule 4.2.
Nick Winsor, Chairman of the Company, commented:
“Our strategy of investing in income producing companies with strong balance sheets that can successfully navigate today’s challenges has never felt more relevant to investors, and the Board believes that the portfolio management team remains well placed to capitalise on these investment opportunities.”
Key highlights
- Over the past decade, the Company has delivered an impressive cumulative NAV total return of +116.3%, outperforming the reference benchmark, which returned +83.3%.
- The net asset value per share of the Company delivered a positive return of +2.5% over the six months to end February 2025 but lagged the Reference Index over the period.
- This relative underperformance was in large part due to underweight positioning in China and the rally of internet platform names and IT companies – most of which pay little or no dividend, resulting in minimal exposure there.
- The Company’s portfolio continues to be focused on the core Asia-Pacific markets of Taiwan, Australia, Singapore, and China/Hong Kong.
- The Company has paid a first and second interim dividend for the year ending 31 August 2025 of 2.00 pence per share.
- Having grown its dividend every year since launch, the Company is classed in the AIC’s next generation of dividend heroes and it remains the Board’s aim to achieve full dividend hero status.
Chairman’s Statement
I am pleased to present my first interim report as Chairman of the Company. I would like to begin by thanking Paul Meader, the outgoing Chair, for his commitment, dedication and wisdom over the past eight years. The Company performed well under Paul’s leadership and I look forward to building on this success, working with my colleagues on the Board and the investment team at Schroders, to deliver strong returns to you, our shareholders.
Performance
The period under review was characterised by two distinct factors affecting Asia-Pacific markets: an initial rally in China as a result of government stimulus, which subsequently faltered due to a lack of further support measures, and a later period of volatility across the region as investors sought to digest the implications of Donald Trump’s election for a second term as US president. In addition to the uncertainty created by the election of President Trump, a firmer outlook for interest rates and a stronger dollar also negatively impacted sentiment across the region.
Against this backdrop, the Company’s NAV per share total return was +2.5%, which lagged the Reference Index (MSCI AC Pacific ex Japan (Net of Dividends Reinvested) Index in Sterling terms) return of +10.4%. The share price total return for the six months ended 28 February 2025 was +4.9%. This performance gap was largely as a result of being underweight China, where we remain cautious due to the significant economic challenges facing the government, and where technology stocks were the main beneficiaries of the rally. These companies generally do not pay dividends and fall outside the investment mandate of the Company. We have experienced similar short-term performance gaps in the past and remain confident in the medium-term outlook.
You can read a more detailed account of company performance in the Investment Manager’s Report.
Outlook
The outlook for global investment markets has become increasingly uncertain. President Trump’s inauguration came late on in our first-half reporting period, and while he quickly signed a slew of executive orders in his first weeks in office, these were largely focused on domestic and border matters rather than on broader international trade. More recently there has been a marked shift, with the announcement of significant tariffs on US trading partners across the world, some of the highest of which were seen in Asia: Cambodia (49%); Vietnam (46%); Thailand (36%) and Taiwan (32%), the latter being a critical element of the global technology supply chain.
At the time of writing, these tariffs have been ‘paused’ (scaled back to 10%) for 90 days to allow time for bilateral negotiations. Meanwhile, Presidents Trump and Xi of China are engaged in an escalating battle of tit-for-tat tariff increases, which has unsettled investors around the world. These factors present a significant challenge to the recent trend in global manufacturing, which had seen US-domiciled businesses, such as Apple, shift some of its production of iPhones, iPads, MacBooks, and AirPods from China to Vietnam and India.
Nevertheless, the economies of Asia remain among the fastest growing in the world, according to the latest International Monetary Fund forecasts, and this growth is being increasingly driven from within the region itself. The Asian Development Bank has noted that 52% of the foreign direct investment in Asia is intra-regional and the degree of Asia’s trade integration is now comparable to that of the European Union and the UK. If the region can continue on this path, then the long-term prospects for your Company and the businesses in which it invests should remain favourable, regardless of how the dust from President Trump’s tariff war settles.
Discount Management
The Board endorses share buybacks when the market price significantly undervalues the portfolio and closely monitors the Company’s share price relative to its NAV, committing to repurchasing shares to effectively manage this situation. During the six months up to 28 February 2025, the Company repurchased 9,632,000 ordinary shares. The Board remains confident in the intrinsic value of the Company’s investments and will continue to repurchase shares when it meaningfully enhances asset value per share.
Revenue and Dividends
The Company has paid a first interim dividend for the year ending 31 August 2025 of 2.00 pence per share (2024: 2.00 pence per share) on 14 February 2025. A second interim dividend of 2.00 pence per ordinary share was paid on 16 May 2025 to shareholders on the register at close on 2 May 2025.
The income from investments received by the Company during the first half of the financial year has fallen marginally by 1.3% compared to the same period last year. The Company has revenue reserves of £23,657,000 (equivalent to 10.19 pence per share) after paying the first interim dividend. Such reserves are available to support the level of dividend you receive. This ability remains key advantage of investment trusts over other savings and investment vehicles.
In the short-term, volatility is likely to prevail, and, in such an environment, dividends stand out as a reliable anchor. The Asia-Pacific markets produce some of the highest dividend yields globally, yet pay-out ratios are below the global average, suggesting considerable scope for future dividend growth. Furthermore, several Asian nations (including China, India, Japan and Korea) have made or are implementing corporate governance reforms to encourage a greater focus on shareholder returns. Companies that prioritise rewarding their shareholders through dividends often possess defensive qualities such as strong balance sheets and consistent earnings, and this has underpinned the historically observed ability of yield-focused investment strategies to outperform during times of market stress.
Having grown its dividend every year since launch, the Company is classed in the AIC’s next generation of dividend heroes and it remains the Board’s aim to achieve full dividend hero status on the completion of twenty years of consecutive dividend growth next year.
Gearing
The Company has established a £100 million revolving credit facility with The Bank of Nova Scotia. During the period, the average gearing was 5.5%, contributing modestly, net of financing costs, to the Company’s overall performance.
Summary
Asian countries are grappling with uncertainty regarding potential trade restrictions/tariffs under the Trump administration, especially in relation to China. This unpredictability, coupled with rising US interest rates, volatile exchange rates and the challenges facing the Chinese economy, are likely to weigh on regional stock performance. Against this background, our strategy of investing in income producing companies with strong balance sheets that can successfully navigate today’s challenges has never felt more relevant to investors, and the Board believes that the portfolio management team remains well placed to capitalise on these investment opportunities.