6 Asia Dragon Trust plc
Future of the Company
In May of this year, your Board announced its intention to
undertake a strategic review of the future of the
Company, including its ongoing investment management
arrangements. The Board of the Company announced on
28 October 2024 that it had concluded such review.
The outcome of the review was a proposal by the Board
(the “Proposal”) that the Company should combine with
Invesco Asia Trust plc (“Invesco Asia”), an investment trust
managed by Invesco Fund Managers Limited (“IFML”). The
enlarged Invesco Asia would continue to be managed by
IFML under Invesco Asia’s existing investment objective
and investment policy.
Under the strategic review the Board undertook a full and
robust review process and considered a wide range of
options for the Company. The proposal to combine the
Company with Invesco Asia was considered the most
attractive outcome for shareholders, providing a partial
capital return alongside the continuation of shareholders’
investment in an investment trust that has delivered strong
long-term performance managed by a highly regarded
team at IFML. The combination, if approved, will create a
vehicle of scale with a diversified shareholder base, a
significant increase in dividend for Asia Dragon
shareholders who roll over into Invesco Asia and a more
competitive management fee. Furthermore, the
introduction of a triennial unconditional 100 per cent.
tender offer alongside ongoing buyback activity by the
enlarged Invesco Asia provides a compelling approach to
discount management that we expect to serve its
shareholders well over time.
I set out below under ‘Result of the Review’ more
background on the Proposal and its rationale and benefits
to the Company’s shareholders. The Proposal is subject to
shareholder approval at general meetings to be held in
early 2025.
Results
In the 12 months to 31 August 2024, the MSCI AC Asia ex
Japan Index rose 12.0% in sterling total return terms. The
Company’s net asset value (“NAV”) increased 9.3% on the
same total return basis after accounting for dividends. The
share price rose from 353p to 404p over the year, which,
with dividends added back, yielded a total return of 16.7%.
This reflected a narrowing of the discount to NAV to 10.8%
as at the year end, from 16.2% as at the previous financial
year end.
Performance
Your Company posted mixed returns over the reporting
year, with initial weakness in late 2023 but with
performance stabilising by August 2024. The stabilisation
followed a portfolio "reset" after the Company’s
combination with abrdn New Dawn Investment Trust plc in
November 2023, allowing the larger portfolio to invest in
Australasia and up to 30% in non-benchmark holdings.
This broadened investment universe flexibility enabled the
Manager to invest in quality stocks that had previously
been inaccessible, positively impacting performance. Key
contributors over the year included non-benchmark
stocks like ASML and ASM International in the
semiconductor and technology hardware segments. As
AI-related apps and chips start to proliferate, rising
demand in terms of usage and complexity is boosting the
semiconductor and consumer electronics segments.
Other key contributors included Taiwan Semiconductor
Manufacturing Co, power testing services provider Chroma
ATE and passive component supplier Yageo in Taiwan, as
well as Indian real estate group Godrej Properties.
I would also highlight that China, which was the biggest
detractor from performance over the interim period,
remained a key detractor for the full financial year. As I
mentioned in my interim statement, the Manager has
undertaken a thorough review of the Company’s Chinese
holdings, and resized exposures where appropriate. This
was implemented in view of the near-term headwinds in
China, namely, a slower than expected consumer
recovery and a still-weak property sector, amid a broader
soft macro backdrop.
As a result, the Manager significantly reduced overall
Chinese exposure. With a focus on good earnings visibility
and steady cash flow generation, the Manager has added
or increased exposure to Chinese holdings that show such
attributes but exited positions where the outlook is more
uncertain. The Manager retains high conviction in the
Chinese holdings that remain in the portfolio, and
continues to see significant value opportunities in this
market. However, the Manager remains watchful of
structural challenges in the country as well as more details
on the recent stimulus measures and execution and
implementation of policies. Encouragingly, in the latter
part of the financial year from 1 January 2024 to 31
August 2024, the Chinese exposure has turned around to
become a marginal contributor to the Company’s
relative performance.
The Manager’s Report on pages 10 to 12 covers the
Company’s performance in greater detail.
Chairman’s Statement