Excellent long term returns: Invesco Asia Dragon

Invesco Asia Dragon (IAD) has recently become a £1bn trust following some excellent periods of performance over both the near- and longer-term. This has been achieved through the contrarian approach used by the recently refreshed management team of Fiona Yang, Ian Hargreaves and Marc Ye which has captured the exceptional rally seen in Asia over the past year.

Additionally, this size has led to the lowest Chargesin the peer group, with an OCF of just 0.59%. Contributing to this is the tiered management fee, which has successfully passed on the economies of scale to shareholders achieved as the trust has grown, both as a result of the strong Performance and the recent combination with a peer.

The main driver of the strong performance over the past year has been technology stocks, which have benefited from the surge in demand for AI-related infrastructure. The managers have captured much of this, although have begun selling into the strength to capture profits and recycle into more contrarian ideas. For example, the managers have cut their Samsung Electronics exposure considerably after shares more than doubled in the first six months of 2026 and rotated into Chinese game developers which have sold off on fears AI could interrupt their business. As a result, the Portfolio now has a notable underweight to technology, although the managers have maintained exposure in certain key areas where they think earnings are more sustainable.

Whilst this has led to excellent capital returns, IAD’s enhanced Dividendpolicy helps broaden the appeal to a wide range of investors. There are four equal quarterly payments a year, equivalent to a yield of 4% on the financial year’s closing NAV. This means the trust offers a blend of income and capital potential, aiming to generate double-digit total returns per annum over a market cycle.

The exceptional returns of the past year have shown that Asia is beginning to come good on its growth potential in our view. However, the strength of the rally in certain areas has been met with concerns over valuations and earnings sustainability. We believe this is where IAD’s contrarian approach comes into its own, as the managers’ bottom-up approach and pragmatic take on valuations could appeal (see Performance). A good example of this is top contributor Yageo. This has generated significant alpha after benefiting from the AI trade, although it was a small index weight. Furthermore, due to its more diversified business lines it is potentially less exposed to a potential pullback and helps the managers avoiding some of the concentration risk in the region. In addition, the recent additions of supposed AI losers demonstrate the contrarian approach in action, and supports potential future alpha opportunities, as well as creating Portfolio diversification to both peers and the index.

Further differentiation comes from the attractive blend of capital and income potential. Whilst the trust is far from alone in offering an enhanced Dividend, this combined with the contrarian approach continues to help the trust stand out in our view. In addition, the highly competitive fee structure, which has passed on the economies of scale as they have been achieved also appeals, even versus passive exposure.

As a result, we believe IAD is a vehicle that offers considerable diversification benefits, with a differentiated performance profile all at an attractive cost, which should appeal to a wide range of investors. With that in mind, the current Discount offers an attractive entry point, as it is trading in line with the average since the corporate activity and promotion to the FTSE 250 Index in early 2025.