ISA fund ideas: investing in Asia for income

Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

Asia has plenty of appeal for investors seeking to build a high-income ISA or pension portfolio.

The income yield from Asia stock markets is currently 2.5%, comfortably higher than the average 1.7% for world stock markets and 1.2% for the US markets. These are based on current dividend payments which are not guaranteed.

The region is also home to many tiger economies, those that have roared from low to high economic growth in a generation, such as Singapore, Hong Kong, South Korea, and Taiwan. And it’s where you’ll find the world’s two most populous countries - India and China.

Some salient facts about Asia:

• Asia is home to around 60% of the global population but makes up only 37% of the world economy. This puts it ahead of North America (31% share of world GDP) and Europe (24%), according to the International Monetary Fund (IMF).
• The IMF expect Asian economic growth of 5.1% both this year and next compared to 1.9% and 1.8% for advanced economies.
• Asia accounts for approximately 20% of global stock market size. This includes major players like Japan, China, India, and South Korea, among others. The US dominates with around 60%, according to Statista.
• It has a young population and may therefore benefit from the ‘demographic dividend’, where economic productivity is boosted. Asia has a median age of 32 compared to 42.5 in Europe.

Those big picture statistics speak volumes about the potential of Asia. But here has also been positive near-term newsflow for China, in particular: the surprise development of DeepSeek, an AI tool to challenge the dominance of US rivals, and BYD’s acceleration away from Tesla as the world’s number one electric carmaker. China produced 60% of the world’s electric vehicles (EVs) in 2024.

• Read: DeepSeek has blown three AI myths apart

The backbone of the Asian economy is manufacturing, not just in electric EVs but also in consumer and industrial electronics and semiconductors. TSMC of Taiwan is a dominant chipmaker. China and Japan also host some of the world’s largest banks and the region is expected to become dominant in fintech.

The risks

For investors, it is important to understand the risks. The region has seen volatile periods in the past, which may be repeated. Certain markets are also highly sensitive to geopolitics. China and Taiwan are good examples. Other countries have faced internal issues that have concerned markets, such as the brief declaration of martial law in South Korea. Stocks and currencies in Indonesia and India have also been heavily sold off due to the dollar strength.

The whole region must also navigate growing trade tensions and a potential increase in tariffs imposed by the US. There is an argument that a growing separation between economies has driven innovation in China.

Where to invest

It is important to understand exactly what you are investing in.

As the stats above show, Asia is an enormous continent, stretching from the Middle East to New Zealand in the south and Japan in the north.

The mainstream fund investment opportunities open to UK investors are more specific. Most of the relevant funds can be found in the ‘Asia Pacific’ Investment Association (IA) sector in our Investment Finder, either including or excluding Japan. These funds will typically invest in the likes of China, Korea, India and Thailand.

Our Select 50 list of favoured funds includes these options.

Schroder Oriental Income Fund

Dividend yield: 4.17%

Cost: 0.88% ongoing charge with a performance fee, estimated at 1.56% this year

This is an investment trust, which gives the manager more freedom to invest than with an open-ended fund. For example, it can borrow money to invest and it does (albeit fairly modest amounts). It also owns smaller companies, which is something that an investment trust can do more comfortably because of its structure. This fund invests in companies across Asia, in countries like China, India and Australia, and it focuses on those that pay a dividend. We suggest a long-term view is taken - ten years plus - and that this fund is seen as one of the riskier allocations within a diversified portfolio.

• More on Schroder Oriental Income Fund

Fidelity Asian Smaller Companies Fund

Historic dividend yield: 5.18%

Cost: 1.08% ongoing charge 

Understanding companies in such a diverse region as Asia is resource-intensive so it’s positive that this fund has access to an extensive, high-quality pool of equity analysts. Investing in smaller companies, increases risk, but also potential return. This fund would be a useful addition, as a small weighting, to the riskier allocations within any diversified portfolio. A long-term view of ten plus years is also needed here.

• More on Fidelity Asian Smaller Companies Fund

Stewart Investors Asia Pacific Leaders Fund

Dividend yield: 0.73%

Cost: 0.84% ongoing charge

Stewart Investors is also one of the pioneers in sustainable investing. It also has a long tradition investing in the region and an experienced team of experts. Its allocation to China tends to be lower than the regional benchmark. The fund has a 'quality' bias. This means the companies tend to be more expensive than others, for good reason. It also means the income yield is lower than for the other funds.

• More on Stewart Investors Asia Pacific Leaders Fund

Country specific

Investors may also want to consider backing individual countries, although this obviously is less diversified than the other funds mentioned here.

For Japan, the Select 50 highlights Schroder Japan investment trust, which pays a yield of 3.95%. You can find the full list of Japan funds here.

While not in our Select 50, it should be noted that the Fidelity China Special Situations investment trust has been regularly in our top selling trusts, ranking third in 2024 and fifth so far in 2025.

• Read: Fidelity China Special Situations: a 2025 bestseller

Will Asian income grow?

Not only is income relatively high in the region there’s scope for it to grow. The region has low payout ratios. These are the proportion of earnings that companies pay in dividends to investor.

Elsewhere, companies have dedicated more of their earnings, whereas the figure is relatively low for Asia. Many Asian companies, particularly in developed markets like Hong Kong, Singapore, and South Korea, have embraced a shareholder-friendly approach by increasing dividend payouts with further room to grow.