The Asian Dividend Revolution

After witnessing severe declines in the value of many of the funds that invest in UK and international company shares over the last few years, investors are increasingly recognising the importance of dividend payments as part of the total returns generated by a portfolio of company shares.

Meanwhile, those UK investors who have always invested their savings in the hope of generating a worthwhile level of income have begun to appreciate the importance of being able to diversify part of their total investment beyond the UK stock market. The opportunity has come about due to a number of significant cultural changes in the way in which many overseas companies are run.

These changes have resulted in rising levels of company dividend payment and nowhere has this been more noticeable than in the stock markets of Asia.

Despite the backdrop of slowing economic growth in Western markets, an ever-growing percentage of Asian companies' earnings are now paid out to shareholders in the form of dividends. As well as attractive levels of dividend, Asia offers some of the least expensive stock markets and fastest growing economies in the world.

Other strong attractions of investing in Asian companies include the fact that the vast majority have healthy balance sheets that don't have anything like the level of borrowing seen in Western companies. Similarly, most Asian countries are now enjoying current account surpluses while foreign exchange reserves have increased sharply within the region.

Newton also expects to see Asian currencies continue to appreciate against sterling over the medium to long term, reflecting the region's strong underlying economic fundamentals. This should also help to drive strong investment returns for sterling investors in the region. Naturally, there remains the possibility that sterling could strengthen at some point, reducing the value of the investments within the region in sterling terms.

A number of Newton's global investment themes continue to support investment in Asian companies. One of the principal themes is called 'population dynamics'. This recognises that, right across Asia, urban populations continue to grow spectacularly. Until recently, the collective urban population of Asia was growing by over 30 million people a year due to the continued mass migration from rural areas to the cities.

One aspect of this great migration is that, as more people move to the cities in search of the far higher wages that are on offer, the level of car ownership naturally increases. This has put increasing pressure on road infrastructure in the region, generating a number of investment opportunities in this area.

Closely linked to the theme of 'population dynamics' is the increasing importance of domestic consumer demand within the region. This is because Asian urbanisation has resulted in wages rising fast, creating a new and affluent middle class. This in turn has created great demand in every industry from food production to consumer electronics, helping to ignite domestic consumption in Asia and leading to its accounting for a far greater proportion of economic growth in the region.

Equity income funds traditionally seek to deliver both growth and a regular rising income from portfolios that emphasise companies with high dividends. Until recently, funds of this type tended to focus on the UK stock market as British companies had historically offered far higher levels of dividend than their overseas counterparts.

Asian companies have embraced a dividend culture. This is largely the result of the concerted efforts made by Asian companies to attract a wider investment audience by offering income as well as the potential for capital gains.

The Newton Asian Income Fund was one of the first funds in the UK to recognise this investment opportunity. It is a blend of two approaches, mixing the strict yield discipline of the flagship Newton Higher Income Fund (yield is simply a company's dividend expressed as a percentage of its share price) with Newton's unique global thematic investment approach.

While some investment approaches rely heavily on following the direction of the market or on individual manager views, Newton's thematic investment process encourages its fund managers and analysts to identify the main drivers, and the main threats, to financial markets. Its global themes encompass ideas which range from today's growing environmental pressures to the development of a world in which credit is much more difficult than previously to obtain.

The Newton Asian Income Fund aims to deliver a blend of both income and long-term capital growth by investing in the shares of companies from across the region. The Fund has a concentrated portfolio of around 40 stocks and can invest across all the major markets of the region, including China, Singapore, Hong Kong, Thailand, Malaysia, the Philippines, South Korea, Taiwan, Australia, India, Pakistan and New Zealand. Investment returns are not guaranteed, however, and the value of your investment can fall as well as rise. Although we expect sterling to remain weak over time, its appreciation against Asian currencies may erode the value of investments. It is important to note that companies are not obliged to pay out their profits to shareholders so dividends are not guaranteed.

In common with all of Newton's equity income funds, the Newton Asian Income Fund is underpinned by a strict yield discipline. To qualify for consideration as part of the portfolio any company share must have a yield greater than that offered by the FTSE All-World Asia Pacific ex Japan Index. When the yield on a portfolio holding declines to the same level as the index, the shares are sold and the proceeds reinvested into the most attractive new investment ideas generated by Newton's team of professional company analysts.

In addition to the research conducted by Newton's company analysts, the Asian equity team also visits the region regularly, meeting approximately 35-40 companies each time, as well as welcoming the management of visiting Asian firms to its London offices each week to discuss the progress of their businesses.

By applying Newton's thematic approach alongside its yield discipline, the Newton Asian Income Fund offers UK investors the opportunity to diversify their income investments right across Asian markets.

Investing in equity income funds may not meet all investment objectives. For further information on the Newton Asian Income Fund you should read the Simplified Prospectus. If you are unsure which type of investment is right for you, then you should discuss your particular financial needs with an Independent Financial Adviser.

When investing, it is important to understand that all investments carry a degree of risk - some more than others. Here we explain the nature of risk in investing and introduce the risk & return ratings for BNY Mellon Investment Funds. These include indicators of the suitability of our funds for different types of investors.