The manager of Schroder Oriental Income (SOI ) investment trust Richard Sennitt remains positive about the Asian technology sector, which was the top performer last year as the global demand and supply imbalance for hardware normalised.

While many investors flocked to the US Magnificent Seven stocks for AI exposure, cheap Asian companies drove the £667m Asia Pacific fund’s underlying value up 7.5% over the six months to the end of February, beating the MSCI AC Pacific Ex Japan benchmark’s 1.9% gain, interim results show.

Technology companies, including Taiwanese chipmaker TSMC and Korean electronics company Samsung, which make up a third of the portfolio, benefited from countries finally restocking inventories, which had been filled during Covid, as well as the long-term structural growth of AI and digitalisation.

Portfolio manager Sennitt told Citywire that the broader rally in Asia was driven by exposures to IT, with a lot of hardware semiconductor companies performing well.

‘But also going on in the background is what I think is a theme for Asia: exports across the region have been picking up,’ he said. ‘That’s really a function of finally getting through the inventory adjustment – when everyone shifted from buying stuff to consuming services after Covid. They’ve worked through that end inventory and we’re seeing a pickup in demand coming through for the more export-orientated sectors.’ 

The April factsheet shows that the portfolio’s 31% weighting is far ahead of the index’s 25%, and so is the 33% bet on financials versus the benchmark’s 22%.

Financials, which includes banks and insurance companies, remain strong income payers, while also remaining well capitalised at attractive valuations, Sennitt said. He pointed to Singaporean banks, which are exposed to ‘growthy hinterlands’, such as Indonesia, and form part of the income-paying portfolio. This also includes miner Rio Tinto (RIO).

The low 13% weighting to China, which is half the index’s, paid off as it had a lacklustre period, but has since improved after the government introduced stimulus measures to get the economy back into gear.

Sennitt avoids the country largely because it does not have many dividend-paying companies, while he also has concerns over unexpected regulatory crackdowns, preferring Hong Kong-listed companies instead. 

He noted that geopolitical tensions had proved ‘remarkably stable’ during Taiwan’s election of a pro-independence government, but feared tensions with the US could be heightened during the upcoming election between Trump and Biden.

Holdings in South Korea, which constitute 15% of assets, could benefit from the ‘value up’ programme, which is loosely modelled on Japan’s corporate governance reforms that encouraged boards to distribute more cash to shareholders.

‘While it is very early days, if we start to see companies follow that route, it should be good for the allocation of capital,’ Sennitt said.

He struck a bullish tone overall, noting that not only was the technology sector recovering, but eventual US interest rate cuts and a weaker dollar, which have historically been tailwinds, would help.

Since Sennitt took over the 4.3%-yielding trust in January 2021, the shares have climbed 20%, while the benchmark has dropped 6%, according to data from Morningstar. Over five years, the shares have added 34%, which is ahead of the MSCI AC Pacific Ex Japan index’s 28%.

While the shares remain at a 4% discount to net asset value, the board’s share buyback programme has narrowed the deficit from 6%, having bought back 2.2% of shareholder capital.