Why savvy investors are turning to Asia via our Asia Dragon Investment Trust

For information on investment risks, see bottom of the page.

Across Asia and emerging markets, a powerful story is unfolding. We discussed in our article in February that more than 85% of the world’s population lives in Asia and the emerging markets. North Asia is home to world leading manufacturing and technology companies many of which are the the ‘picks & shovels’ of AI-related growth. China, India, Southeast Asia and Latin America are the hotbeds of consumer demand growth, including innovative internet and e-commerce businesses. Asia is increasingly seen as a key engine of future long-term growth as global investors look beyond the familiar markets of the UK, Europe and the US.

How we find hidden value in Asia and emerging markets

Our Asian and Emerging Markets Equities team actively manage investment portfolios across Asia and emerging markets, which means we hand-pick companies based on our own, proprietary research. Our fund managers place a focus on valuation; the team believe that the most repeatable way to make money for our clients is to buy good quality companies, at a price lower than what we believe they are valued at.

To do this, we conduct deep research on each company, where we look closely at each company’s financials, business model, and long-term growth prospects to get a clear understanding of their “fair” value. If the stock is trading below this “fair” value then we believe that the price is likely to rise, a key signal for investment. Often this approach leads us to look for opportunities where others aren’t, in an effort to find hidden gems and build portfolios that can help deliver returns throughout market cycles - recurring phases of growth and decline that financial markets naturally go through over time.

Within the Invesco Asia Dragon Trust plc investments are held across a broad range of companies in Asia, such as Taiwan Semiconductor Manufacturing, Tencent and Samsung Electronics. As the Trust aims to identify companies trading below fair value, with the goal of delivering both capital growth and income for investors.

How we assess risk: Why a strong balance sheet is central to our investment strategy

Every investment comes with risks. One of the underlying pillars of our investment approach, and a risk mitigant is to demand a strong balance sheet from the companies we invest in. Specifically we look for companies with net cash on their balance sheet, rather than net debt.

Why strong balance sheets matter:

• Flexibility: In a downturn – a period when financial markets experience a sustained decline in value - these companies can keep investing, buying back shares, or growing while other businesses might have to cut back. It provides a company with options.
• Safety net: If something goes wrong, companies with strong balance sheets are more likely to remain financially stable, and able to weather the storm if revenue slows.
• Smart management: If a company can balance investing for growth, without taking on too much debt, then it’s often a sign that its leaders make sensible decisions in other areas too.

Building a portfolio focused on total return

The Invesco Asia Dragon Trust plc (IAD) is focused on its aim of providing long-term capital growth and income by investing in a diversified portfolio of Asian and Australasian companies. To generate a return for investors, the Fund Managers focus on the total return of the companies they buy.

Total return is the total amount of money you make from an investment, including both the profit from selling it and any income received along the way. The total return of a company can be driven by:

• Earnings growth: An increase in a company’s profits over time leading to an increase in the share price.
• Valuation change: A shift in how the market prices a company.
• Shareholder returns (in the form of dividends or buybacks).

Depending on the market environment, any of the three above drivers could be more in favour and driving returns. Over time, the Fund Managers believe that a combination of these drivers of returns will ensure a diversified portfolio, designed to perform across all market cycles.

For us, investing in these markets isn’t about chasing trends. It’s about building high-conviction portfolios of resilient, well-run businesses with the potential to deliver strong, sustainable returns over time.

How the trust could fit into your portfolio

The Invesco Asia Dragon Trust plc can be used to gain exposure to the long-term growth potential of Asia and emerging markets. It may serve as a core holding for investors seeking diversified regional exposure, or as a complement to other strategies with a different investment style. The Trust is actively managed with a focus on valuations, company fundamentals - its core financial and operational characteristics - and a total return mindset, with the aim of delivering enhanced dividends for investors.¹

As global investors look beyond the familiar markets of the UK, Europe and the US. Asia is increasingly seen as a key engine of future long-term growth.

Compared to mutual funds, investment trusts also have a unique advantage when it comes to delivering regular income. The Invesco Asia Dragon Trust plc aims to deliver a steady income, even in challenging markets. The Company intends to maintain an aggregate annual dividend equal to 4% of its NAV, payable 1% per quarter. The current dividend yield² of the IAD is 4.2%.