He acknowledges that the region faces volatility in the months ahead due to threats from North Korea and Donald Trump’s vocal support of protectionist trade policies, as well as other political uncertainties. But he would also see any resulting dips as buying opportunities. “At the end of the day, what matters is company-specific, long-term fundamental drivers,” he says.

The fund’s total return strategy maintains an equal focus on both dividend yield and the growth potential of the underlying dividends. That makes it somewhat different from many of its peers, which focus almost exclusively on yield and contain hefty helpings of bank and commodity stocks.

About half of the portfolio is invested in names with stable high-dividend payouts and high dividend yields. These usually large-cap companies have more defensive businesses; they may have passed their prime growth stage, but they offer stable dividend income streams. With such stable plays in place, Zhang fills the rest of the portfolio with stocks whose underlying businesses are growing at a faster pace, even if they have more modest current dividend yields. There are just 64 stocks in the portfolio, and the turnover is a modest 40%.

There are no set parameters about how long a company must be paying dividends or yield levels, although most have a consistent history of dividend payment. “There are times when we will invest in a company without such a history if it has recently listed publicly,” he says. “But we will first make sure the company has strong cash flow, a solid balance sheet and management that is committed to paying dividends.”

Nor does the fund hew strictly to its benchmark on country or sector allocations. China represents the most overweight country position while Japan is underweight. Australia, where the banks and materials sectors have excessive exposure to both internal and external shocks, is also underweight relative to the benchmark.

The most heavily overweight sectors are consumer staples and consumer discretionary, which Zhang favors because they have better pricing power, better cash flow and lower capital requirements than industrials and other sectors. On the other hand, the fund is light on technology stocks because the Asian companies in the sector typically don’t pay dividends. More familiar internet-related names that are almost a fixture in foreign and international funds, such as Alibaba, have valuations that are stretched beyond his comfort level.

One of the more challenging aspects of Zhang’s job is ferreting out information about management’s willingness to share the bounties of a strong business with shareholders. That’s not always easy, particularly in businesses where a family maintains the majority stake.

To get to the bottom of things, Zhang speaks directly to majority shareholders (often in Mandarin Chinese, his native language) to get a better sense about their motivations. “We like to see a situation where the bulk of a controlling shareholder’s wealth is tied up in the listed company and they need to extract cash flow from dividends,” he says. “Having a formal dividend policy in place is also a good sign.”

Not all companies pass the dividend smell test. Despite improvements in disclosure requirements and corporate governance practices over the last few years, some Asian companies don’t act in the best interests of minority shareholders. In what Zhang calls a “bad connected party transaction,” for example, majority shareholders might use money raised in a public offering to buy up their other private, unlisted businesses rather than pay dividends.

Zhang and Horrocks have done a credible job of ferreting out the more attractive and reliable dividend payers in the region, noted Morningstar analyst William Samuel Rocco in a report earlier this year. “In particular, they focus on companies with clear dividend policies and commitments to growing their dividends, and they readily build atypical country and sector weightings and invest in small caps. ... This fund moderates downside risk (owing to the resiliency of dividend payers) while retaining significant upside potential (thanks to its various distinctive traits).”

Stocks falling into the large-cap, steady dividend group include longtime holding ThaiBev, one of Asia’s leading producers and distributors of alcoholic beverages. Family members own about two-thirds of listed shares, which are valued at around $17 billion. Zhang likes the company because its alcohol business provides a steady stream of revenue regardless of economic conditions, and it has both a strong dividend policy and a well-planned growth strategy.

Holdings with a growthier bent that pay lower dividends include China Gas Holdings, which builds pipelines and sells natural gas to residential, industrial and commercial users. With capital-intensive expansion plans winding down, China Gas is well prepared to generate more cash and increase its dividend. Another dividend grower, Minth Group, is the fund’s largest holding. Zhang began buying the stock of the China auto parts manufacturer in 2008, when the market crash brought the price down to half of book value. Since then, the company has offset slower sales growth in China with sales to automobile manufacturers in Japan, Europe and the U.S. Earnings for the company, which has a $5 billion market capitalization, have grown an average of 20% over the last five years.

CapitaLand, a large-cap real estate company in Singapore that was added to the fund earlier this year, has about three-quarters of its total assets in recurring income-generating properties such as office buildings, shopping malls, listed real estate investment trusts, serviced apartments and fund management businesses. The more volatile property development business accounts for only about one-quarter of CapitaLand’s total assets. This strategically sound business mix paves the way for more stable cash flow and potentially higher dividends.

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