Investors looking to build and maintain resilient portfolios in today’s environment should look at stable sources of income, such as Asian Reits and dividends.
Asian Reits can benefit from growth opportunities found in data centres, technology parks and green buildings, as well as the re-opening boost for malls and hotels, argues Eastspring. The region also appears well-placed in an income portfolio given its large universe of high dividend paying equities versus other parts of the world.
“Against an uncertain global economic outlook, having a stable income stream is an attractive proposition for investors,” said Katerina Irwan, portfolio manager at Eastspring Investments.
Perhaps most importantly in this type of environment, investors should seek income from multiple sources. “Investors will be able to capitalise on growth opportunities benefitting Asian Reits, as well as Asian dividends being higher than other regions,” she added.
Well-trodden paths
Asian Reits have delivered in times of rising yields. For example, in the last four periods when the US 10-year treasury yield rose by more than 100 basis points, Asian REITs still generated positive returns
Furthermore, Eastspring sees these assets as being more attractively valued and with lower gearing compared with US Reits.
“The diversity within Asia’s Reits markets means that active managers can leverage on the unique characteristics of the different segments and their cyclical dynamics to increase portfolio yield,” said Bonnie Chan, also a portfolio manager at Eastspring
In particular, for real estate in the region post pandemic, changes in the usage of retail and office space are giving these sectors new leases of life. In addition, as countries re-open borders and ease their safe distancing measures, hotels and malls are likely to benefit.
In terms of dividend returns, meanwhile, the last 20 years has seen Asia exceed those from the US and are comparable to those from Europe.
In addition, evidence from both developed and emerging market equities shows that earnings have historically increased in the year of dividend initiation as well as in the following years.
Diversification benefits
“Asian dividends also have a low correlation to Asian and global bonds, [which is] a plus for investors seeking to build a diversified portfolio of income-producing assets,” Irwan explained.
“Asia seems well-suited for a high dividend strategy. Investors seeking to build a diversified portfolio of income producing assets will also benefit from Asian dividends’ low correlation to Asian and global bonds,” she added.
Making the right choices will be key. While the MSCI Asia Pacific ex Japan index has a dividend yield of 2.55%, investors can achieve a higher than the benchmark yield through careful active selection.
In selecting dividend-paying equities, Eastspring sees the potential in companies with sensible capital management policies that are appropriate to the stage of their business cycle and development. This increases the sustainability of their dividend payouts.
More experienced investors can also take advantage of opportunistic dividend payouts that occur when a company monetises selected assets.
