Wednesday 1 May 2013

Schroder Oriental Income (SOI)

This is one of my long-standing income trusts providing exposure to the Far East and Australian markets. It was established in July 2005 and has been managed by Matthew Dobbs who has been running Asia equity portfolios for Schroders since 1985.

Yesterday they issued a half year report (link via Investegate) for the period to 28th February 2013.

Net Assets increased 25% and the share price has risen 28% as the price to NAV premium has further widened. With the sp trading at this premium, the company has been able to issue a further 9.5m shares. They have also announced an intention to go ahead with a new equity issue of 'C' shares and will offer existing shareholders the opportunity to subscribe for 2 C shares at the price of 100p for every 5 existing shares they hold.

The interim dividend will be increased from 2.7p to 2.95p - an uplift of 9.2%. Furthermore, they have decided to move from half yearly to quarterly payments in line with most other investment trusts. I have pencilled in a full year figure of 7.4p which gives a forward yield of 3.6% based on the current share price of 206p.

The portfolio is spread far and wide - the main areas for investment are Australia 23.1%, Hong Kong 22.6%, Singapore 16.3%, Taiwan 11.9% and Thailand 9.2%.

One area to keep a close eye is management fees. The basic fee is 0.75% of net assets, however, in addition, they are entitled to 10% of the added value over 107% of net assets. As the trust has performed exceptionally strongly over the past 6 months, they have taken a chunky £3.7m performance fee equivalent to 1.0% of NAV (compared to just £0.84m in 2012) and this together with the half year management fees has already exceeded the total full year fees for the previous year.

I will need to have a little time to think about the rights issue - but on the face of it, assuming the new 'C' shares will be converted to ordinary shares at some point, it looks like I will have the option to pick them up at half price!

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