64. Uncovering Trusts – Invesco Asia Dragon Trust (IAD): Looking beyond the obvious AI winners

Yes, I would highlight two things.

Uh, first, Asian equities have been very strong, but, uh, market leadership has become unusually concentrated in a handful of AI-related technology stocks, uh, particularly in Taiwan and South Korea.

The trust has delivered very strong absolute returns, but its valuation discipline means it hasn't fully participated in that increasingly narrow rally.

Second, the trust itself has changed significantly.

It has now completed its first full financial year since the February twenty-twenty five merger with Asia Dragon Trust, which transformed its scale and corporate proposition.

And there is a managed transition within the investment team with, uh, Mark Yeh joining as a co-manager and Ian Hargreaves due to retire in March twenty-twenty seven.

So I think the interesting question today is how a valuation or a active manager navigates an Asian market, uh, increasingly dominated by a small number of AI winners.

Now, we discussed IAD on the podcast back in October, but before we dive into the, you know, the portfolio, the merger, and AI in more detail, could you perhaps remind listeners of what IAD does and what differentiates its approach?

Yes, with pleasure.

Um, the trust invests in across Asian and Australasian equities with the objective of delivering long-term capital growth and income and, uh, outperforming the MSCI AC Asia ex Japan index.

The board describes the investment approach as valuation, not value, which I think captures it well.

Uh, Fiona Yang and the team are not simply looking for, you know, statistically cheap businesses.

They want high quality, well-managed companies where the share price is meaningfully below their assessment of intrinsic value.

That can include growth companies, technology leaders, or businesses going through a turnaround.

They combine broader views on countries and industries with, to a greater extent, bottom-up fundamental research, and company meetings are an important part of the process.

It is also quite concentrated as there were fifty-nine holdings at the end of August, and the top ten accounted for just over half of the portfolio.

Historically, that approach has had some all-weather characteristics, I would say.

Um, our analysis to end twenty-twenty five showed a ten-year upside capture ratio of around one hundred and four percent and downside capture of ninety-four percent.

Put simply, over that period, the trust captured slightly more than one hundred percent of the benchmark's upside, but only around ninety-four percent of the downside.