Invesco Asia Dragon: Firepower, Scale, Growth Potential

Invesco Asia Dragon, a £714m portfolio, has recently merged with a larger rival, birthing a new trust with big ambitions. Co-manager Ian Hargreaves will discuss the investment process behind the strategy's strong record, which has generated a 158% total return over the past decade, well ahead of the MSCI Asia Pacific ex-Japan index. Hargreaves will also highlight where the team is finding opportunities today and their plans to become the 'go-to' Asian trust.

The world of finance has witnessed a significant development in the Asian investment landscape with the recent merger of Invesco Asia and Asia Dragon, two prominent players in the IT Asia Pacific Equity Income sector. The proposed merger, if approved, will create a new trust, Invesco Asia Dragon Trust, with an impressive £800m in assets under management (AUM), making it the largest in its sector [1].

Ian Hargreaves, co-manager of Invesco Asia, is set to discuss the investment process behind the strategy's strong record, which has generated a remarkable 158% total return over the past decade [1]. This return far surpasses the MSCI Asia Pacific ex-Japan index, showcasing the team's ability to identify undervalued Asian companies with the potential for capital growth and enhanced dividends.

Hargreeves' tenure, which began in February 2011, has seen Invesco Asia deliver a return of 205%, 67 percentage points ahead of its peers [1]. The strategy remained in the first quartile of its sector over the past 10 and five years but experienced a slight dip in recent years, as depicted in the chart below.


The merger will also bring about a reduction in fees for investors. The new trust will charge 0.75% for investments below £125m, 0.6% below £450m, and 0.5% thereafter, compared to the current 0.75% below £250m and 0.65% thereafter [1].

Deutsche Numis analysts Ewan Lovett-Turner and Gavin Trodd noted that it is somewhat unusual for the smaller vehicle, Asia Dragon, to act as the consolidator, but this reflects Invesco Asia's superior performance track record after a strong run for its value style between mid-2020 and late 2023 [1]. Asia Dragon's performance has been disappointing for years, with a strategic review initiated in May 2024 following an approach by Ashoka WhiteOak Emerging Markets [1].

Shareholders in Asia Dragon will have a 25% cash exit opportunity at a 2% discount to formula asset value (FAV), while the combined entity will put in place a three-yearly unconditional tender offer for up to 100% of share capital [1]. The board of Invesco Asia aims to make this the go-to Asian trust, with a premium rating to grow organically and through further combinations [1]. To achieve this, it will need to raise its profile and potentially be more active in buying back shares, given its consistent trading wider than the 10% target.

References:
[1] Trustnet. (2023, March 22). Invesco Asia and ABRDNS Asia Dragon Trusts to merge. https://www.trustnet.com/News/13428674/invesco-asia-and-abrdns-asia-dragon-trusts-to-merge/