Invesco Asia Dragon: Gateway to untapped investment opportunities

Investors in the fund will also receive:

• An initial nine-month fee waiver
• Ongoing charge of approximately 70 basis points (0.70%) (previously 91 basis points for Asia Dragon holders and 103 basis points for Invesco Asia Trust holders).
• Potential inclusion in the FTSE 250, boosting liquidity and lowering costs for shareholders
• Quarterly dividends
• Unconditional opportunity to redeem shareholders every three years

Asia: An investment opportunity too big to ignore

Invesco Asia Dragon’s launch comes at a time when the first salvos in a trade war between China and the US have been fired. Some global investors may fear this will dent Asian markets’ performance and seek a perceived ‘safe haven’ in the US.

However, with 85% of the world’s population living in Asia and the emerging markets – which contribute about half of global economic output – we believe Asia is simply too big and too diverse to ignore.

And if tit-for-tat trade tariffs are introduced, US companies such as Apple could be equally if not more vulnerable to the consequences than Chinese companies.

The recent panic in the US over Chinese AI model DeepSeek illustrates the danger of avoiding Asian markets. Asia is home to many good companies with strong fundamentals, particularly in growth areas such as AI. Not only that – they’re often much cheaper than US companies that offer equivalent potential growth.

It’s clear that investors who stay away from these markets risk missing out on some of the world’s best investment opportunities as well as overconcentrating their portfolios.

Of course, this is not to downplay the risks associated with Asian markets. But there’s increasing risk in the developed markets, too, where investors are potentially less well compensated.

We temper the risk in Asia with a diverse portfolio of high-conviction picks and by targeting companies that have conservative balance sheets with low debt, which may mitigate downside risk. 

A balanced approach for consistent performance

At the core of our investment philosophy is a belief that a share price will reflect the intrinsic value of company over the long run. In the short-term markets are driven by human emotion and often behave irrationally. We aim to capitalise on gaps that emerge between price and value. Put simply, we aim to buy when there is fear in the market, when we have a high degree of conviction that a stock is trading at a significant discount to what we consider to be fair value. We then look to sell when the share price recovers, and avoid holding onto stocks when prices reflect greed.

Looking at it another way, this means we target a double-digit total annualised return from each company in our portfolio of around 60 stocks¹. This allows us to potentially achieve our overall investment target of outperforming the market by 2-3% in all conditions².

Over the past 30 years, the MSCI World has delivered about 5% a year. Targeting growth of more than 10% for each stock gives us a 2% buffer to still achieve 2-3% outperformance of the MSCI World Index. This is necessary because there will always be ideas that don’t work out.

Teamwork is an important part of our process. Our team has a flat structure – which fosters collaboration – and everyone is a generalist. We all operate as analyst, and contribute ideas to the company shortlist.

To promote accountability, everyone within the Asian and emerging markets team manages their own portfolio, with analysts running a model portfolio. And to align our interests with those of our clients, our bonus structure is based on rolling three-year performance.

Integrating ESG considerations for informed investment decisions³

Although we are not ESG investors, ESG is – and always has been – an important part of our process. For example, there are certain companies in Asia that are trading at a significant discount because of governance issues, we would always take that into account in our assessment of fair value.

ESG is integrated into our bottom-up estimates for business growth, valuation change and dividend yield. And it can affect the size of the position we take in a stock.

For our ESG analysis, we draw on the resources of Invesco’s dedicated ESG team and proprietary ESG rating platform, ESGintel.

We have a strong record of engagement and voting. In 2024 we cast 567 ballots – and 40% of those votes were contrary to management recommendations⁴.

As well as targeting 2-3% above-benchmark performance¹, our commitment to investors includes regular dividends and low costs. One reason to choose an investment trust over an open-ended fund is the commitment to dividends. The Invesco Asia Dragon Trust aims to continue to pay annual dividends of 4%. However, instead of paying semi-annually as previously, we have committed to paying 1% each quarter.

We have also chosen to offer shareholders an unconditional opportunity to redeem their shareholdings every three years. We believe this unusual move will benefit investors by narrowing the discount to net asset value.

We’re proud that the trust’s board has chosen us to steer Asia Dragon – whose previous assets under management were four times those of Invesco Asia trust – on the next stage of its journey.

In turbulent times, the Invesco Asia Dragon trust offers investors a tested route into Asian markets, in the hands of an experienced investment team with a high-conviction approach and a proven track record.

Our high-conviction investment process

We are long-term investors, with a three- to five-year time horizon. Market volatility presents us with opportunity. During periods of heightened uncertainty, we tend not to panic, filtering out the noise of markets to focus on what matters: fundamentals.

This independent-minded approach is one of the reasons the board chose us as managers for the Asia Dragon trust. Based in Henley-on-Thames, our investment team – which runs more than £15bn of investments in Asian and Emerging Markets – concentrates 100% on finding companies in unloved parts of the market that are trading at significantly below what we consider fair value.

For example, a key theme for us right now is consumer-related companies in Hong Kong and China. Consumer sentiment in China is at an all-time low and consumer-related companies are trading at reduced valuations.

This means they are sensitive to changes in consumer sentiment, which we believe cannot stay at rock bottom for ever. Therefore they stand to benefit when Chinese consumers – who’ve been building up cash savings since the country’s property market crashed – start to spend again.

Ideas like this make it into our high-conviction portfolio of about 60 undervalued stocks, which is diversified across countries, sectors and themes. We choose them by whittling down the market to an investable universe of about 1,000 companies, screening for size, liquidity and ESG factors. 

We then create a shortlist of around 100 companies, basing our decisions on fundamental analysis, macroanalysis integrated into our bottom-up estimates, and rigorous internal debate.

Communication is an important part of our process. We have daily conference calls, undertake around 1,000 meetings a year with companies, and travel regularly to Asia as part of our proprietary research.

Our final choices are based on:

• Expected return
• Conviction
• Liquidity
• Downside support
• ESG considerations

Our maximum holding in one company is typically 4%. We also have guidelines – but not rules – about how much the portfolio should deviate from the country allocations in the index.