GUINNESS ASIAN EQUITY INCOME: Fund that trumps rivals – because of the massive beasts from the East

Guinness Asian Equity Income makes money for investors by taking stakes in some of the best companies to be found in the Asia-Pacific region – businesses that are resilient and able to generate profits even when times are tough. It also buys shares in companies listed elsewhere, typically in the United States, which generate a majority of their revenues out east.

The fund’s investment record is impeccable – above average returns compared with its peer group over the past one, three, five and ten years. 

But what stands this £192 million fund apart from many of its rivals is the discipline that underpins it. The result is a fund that rides out volatile stock markets better than competitors while capturing most of the upside when equity prices are in advance mode.

This clearly defined investment process, replicated across all funds managed by Guinness Global Investors, aims to ensure the Asian Equity Income portfolio is never overdependent on one stock. 

It does this by taking regular profits from its best performing holdings and recycling them into fund stocks that are not doing as well. In other words, consistently capturing investment gains rather than blindly running with winners.

As a consequence, the fund nearly always has 36 holdings. They start as equal portfolio weightings, meaning they represent 2.75 per cent of the fund with the remaining one per cent in cash. 

If a company’s share price moves ahead and represents a bigger part of the portfolio, that’s fine. But if it hits four per cent – the ‘cap’ – part of the holding is sold to take it back down to 2.75 per cent.

Similarly, if a company’s shares underperform so that the holding is reduced to two per cent of the fund’s assets, the stake is topped up to 2.75 per cent – or very occasionally sold. If a new holding is bought, an existing one is sold: one in, one out.

Manager Edmund Harriss, who has been at the fund’s helm since it was launched more than 11 years ago – and has been running Asian funds for more than three decades – is proud of the rigorous process that underpins the fund and the returns it has delivered for investors.

He says: ‘Within this exciting part of the world, there are some really good companies involved in industries of the future. Everything from electric vehicles, batteries, through to fifth generation technology, semi-conductors and artificial intelligence.

‘Our fund has exposure to these businesses. The result is a diversified portfolio, both geographically and by sector. Between them, the companies we invest in are generating average annual growth in earnings of between six and seven per cent – and paying a big slug of those earnings to shareholders by way of income.’

For fund investors, it means an income stream equivalent to just over four per cent a year. Over the past ten years, it has provided investors with an increased annual dividend – the two exceptions being 2020 and 2023.

Harriss is confident the region is now in something of a sweet spot. ‘For a while, asset allocators have been fixated with the United States,’ he says. ‘But they are increasingly looking at Asia and thinking that maybe there is a strong investment story developing. Over the next ten years, it could lead to exciting investment returns from good companies on the back of expanding valuations.’

The fund has a total annual charge of 0.89 per cent. Returns over the past one and five years have been 16.3 and 48.1 per cent respectively, compared to an average for its peer group of 12.3 and 30 per cent.