To say that income investors are shell-shocked is something of an understatement: few income investors – if any – are unaffected by recent events.
In short, almost half of the companies in the FTSE 100 have reduced, cancelled, or suspended their dividend payments; Bank Rate stands at 0.1%, and gilt yields are on the floor.
Older investors, in particular, have been hit hard.
For those in retirement, there isn’t a lot that they can do. The one positive to emerge from living in lockdown is that many people’s expenditure – and certainly mine – goes down, simply through there being fewer opportunities to spend.
For those still to retire, rosy dreams of far-away holidays and relative affluence have come crashing down to earth. Retirement dates are being pushed back, and income projections dialled back.
I’ve previously talked about going global for investment income.
As with the Covid-19 virus itself, it seems that the UK has been harder hit by cuts to investment income than many other countries. Larger companies have long been seen by income investors as safer bets than smaller companies – yet the FTSE 100 has been hammered, while a number of my smaller holdings have so far held firm.
So going forward, as I wrote a month ago, I expect to see investors taking a more international stance, weaning themselves off such a heavy reliance on the Footsie.
And in particular, I expect to see Asia-Pacific investments feature more strongly in investors’ portfolios.
Many investors are leery of Asia-Pacific investing, imagining it to be dominated by China and Japan.
It often comes as a surprise to them to learn that China makes up only a modest proportion of many indexing firms’ Asian-Pacific ‘baskets’, and that Japan (and sometimes China, too) is generally excluded. (The formal name for most such indices is actually ‘Asia-Pacific ex Japan’, if one looks closely.)
Likewise, they’re often equally surprised to learn that Australia and New Zealand are included.
The upshot is that many Asia-Pacific collective investments – funds, index trackers, and investment trusts – contain a sprinkling of familiar names. Hong Kong’s HSBC, for instance, and Australia’s BHP Billiton. Such companies may be listed in London but they are also listed, and in some cases headquartered, overseas.
Equally, though, investors are gaining exposure to less familiar names. Companies such as Hong Kong insurance giant AIA Group, Australian banks Westpac, National Australia Bank, and the Commonwealth Bank of Australia, and Taiwan’s Taiwan Semiconductor Manufacturing Company – the latter being the world’s largest semiconductor firm.
Each of the companies mentioned above, for instance – with the exception of HSBC – is in the top ten of the FTSE World Asia Pacific ex Japan index.
MSCI’s Asia-Pacific ex Japan index, which includes China, contains e-commerce firm Alibaba Group, Tencent Holdings, and the China Construction Bank in its top ten.
Why it’s worth getting into the detail of all that is that a lot of Asia-Pacific companies have a very decent dividend track record.
Quietly, over the past 15 years or so, they’ve not only been delivering attractive payouts to investors, but growing that income at a faster level than the global average.
According to Henderson Far East Income’s annual dividend index, for instance, Asian dividends have tripled in a decade, compared to a doubling for dividends outside the region.
Put another way, four of the largest 25 dividend payers in the world now come from the region. In 2019, Asian companies paid £1 in £6 of the world’s dividends, up from £1 in £9 in 2009. By contrast, the UK has seen its share drop to £1 in every £13, down from £1 in £10 in 2009.
Moreover, post-coronavirus dividend forecasts project a lower fall in investors’ income than either the global average or the UK, on both best-case and worse-case scenarios.
I first bought into Asia-Pacific in February 2009, in the aftermath of the global stock market collapse, and have been a satisfied holder ever since. Initially buying index trackers, I gradually swapped these for Asia-focused income-centric investment trusts – perhaps the easiest way to access Asia.
Which trusts? Principally Aberdeen Asian Income, Henderson Far East Income, and Schroder Oriental Income, although it’s worth noting that other global income-centric investment trusts also have large holdings in the region.
At the time of writing, for instance, the two largest holdings of Murray International are Taiwanese companies.
Finally, it’s also worth making the point that many Asia-Pacific companies have two other qualities that appeal to income investors: resilience, and decent dividend growth headroom. In short, cash levels are high, debt is low, and payout ratios are typically less ambitious than in the UK.
Malcolm owns shares in HSBC, BHP Billiton, Aberdeen Asian Income, Henderson Far East Income, Schroder Oriental Income, and Murray International. The Motley Fool UK has recommended shares in HSBC.