Abrdn’s chronically underperforming Asia Dragon trust is set to merge with Invesco’s Asia investment trust.
Despite being the larger of the two trusts, the £682m Asia Dragon trust will be taken over by the £219m Invesco Asia trust, which analysts said was due to the latter’s better performance.
Abrdn’s Asia Dragon launched a strategic review earlier this year.
The trust has consistently underperformed in recent years, returning just 13 per cent over the last five years compared to 37.4 per cent for the wider sector.
Meanwhile, Invesco Asia has returned more than 50 per cent in the same period.
Stifel analyst Will Crighton said: “We had expected some form of corporate action given that Asia Dragon has been a particularly poor performer for a number of years now.”
Fees set to fall for the investment trust
Numis analysts Ewan Lovett-Turner and Gavin Trodd noted the deal will result in significantly reduced fee for both trusts.
Invesco’s trust currently charges 1.03 per cent annually, while Asia Dragon charges 0.91 per cent. The fee will fall to 0.7 per cent following the merger.
Numis described the proposed merger as a done deal, as the largest shareholder of both trusts, City of London Investment Management, has pledged to vote in favour of the deal.
The trusts indicated that they have received further support from other shareholders.
Shavar Halberstadt, analyst at Winterflood said: “Given the shareholder overlap and commitments received, we see no reason for this merger to fail to obtain approval.”
“This proposed transaction is very much in line with sector trends, with entrenched discounts and subpar performance driving boards to consider combinations, increasing scale and presumably manager quality in the process,” said Halberstadt.