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9. Uncovering Trusts – abrdn Asian Income Fund (AAIF)
55 Plays5 months ago
In this episode, our director of content, investment trusts Milosz Papst discusses the abrdn Asian Income Fund, an investment company which offers the prospects of both capital and income growth and which could be considered as a core offering for investors seeking diversification through Asian equity exposure. He covers the company’s bottom-up stock selection process and how it aims to benefit from the underlying growth themes across Asia. He also discusses the company’s strong track record of dividend payments, as well as the recent measures to drive alignment with shareholders, including a fee reduction and the reinvestment of management fees program.
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About ‘Uncovering Trusts’
'Uncovering Trusts': is a podcast run by Edison analysts released every two weeks. Subscribe to hear analyst interviews on how investment trusts maximise returns while managing risks for investors.
About Edison:
Edison is a content-led IR business. We believe quality investment content should inform all investors, not just brokers. Our mission: engage and build bigger, better-informed investor audiences for our clients.
Edison covers 50+ investment trusts, read about them here: https://www.edisongroup.com/equities/investment-companies/
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Transcript
Introduction and Podcast Overview
00:00:05
Speaker
Welcome to Uncovering Trust, a podcast by The Edison Group, a content-led IR business integrating analyst content, digital targeting, investor engagement. Each episode, we're going to uncover the distinct features and latest developments of a selected listed investment company.
Investment Company Sector Insights
00:00:21
Speaker
Tune in to find interesting investment ideas and stay on top of what's happening in the investment company
Interview with Milos Bats: Aberdeen Asian Income Fund
00:00:26
Speaker
sector. I'm your host, Neil Shaw, and today I am joined by Milos Bats, Director of Investment Trust Content at the Edison Group, who will talk about the Aberdeen Asian Income Fund. Tika A. A. I. F. Milos, thank you for joining us today. Thanks for having me. So for listeners less familiar with this investment company, perhaps you could start with just providing a high level introduction to Aberdeen Asian Income Fund.
00:00:51
Speaker
Sure, um the font launched in December 2005 and is managed by Aberdeen's Asian equity team ah based in Singapore, which aims to generate an attractive total return from a diversified portfolio of Asia Pacific equities, including those with above average dividend yields.
Investment Strategy and Stock Selection
00:01:10
Speaker
um Investments are made across the market cap spectrum and the managers are unconstrained in terms of geographic and sector exposures. ah The locally based investment team of 40 analysts and fund managers, including the three dedicated ESG analysts, has built up a strong knowledge franchise over the last 20 years. Okay, so how do you the managers are actually aim to achieve the fund's objectives?
00:01:34
Speaker
yeah So Aberdeen's Asian equity team selects stocks on a bottom-up basis, um essentially seeking quality businesses that are easy to understand and have strong balance sheets ah that are operating in structural growth areas, and which are generating reliable dividends earning some cash flow. The fund's performance is measured against the MSEI Asia Pacific X Japan Index, but which is known as the reference index.
ESG Integration in Investments
00:02:00
Speaker
ESG is an integral part of the investment process as Aberdeen believes that ESG factors are financially material and affect corporate performance. Aberdeen Asian Income Fund has higher MSEI ratings in all three areas, so environmental, social and governance, compared with the reference index.
Fund Portfolio and Market Exposure
00:02:17
Speaker
Okay, so once they take companies through this sort of three-stage process of quality business ah growth areas and generating reliable dividends and earnings and cash flow,
00:02:28
Speaker
What is the resulting portfolio structure that they've emerged with? Yes, so the Aberdeen Asian Income Fund has approximately 60 names, with the top 10 holdings making up around 40% of the portfolio, with around 20% invested in companies with smaller market caps, so up to 2 billion pounds. The portfolio holds some of the most successful Asian companies, as well as younger firms with promising futures. um In terms of geographic ratings, the largest exposures are to Taiwan, Singapore and Australia, ah which are the three highest yielding markets in the Asia Pacific region.
00:03:02
Speaker
um Notable variances versus the reference index are an underweighting to China and an overweight exposure to Singapore. Looking at sectors, ah the fund's largest allocations are to technology stocks, which is an above index weighting and financials where the exposure is more in line with the reference index. So once they're looking at growth streams, perhaps you could sort of explore some of those growth streams that are represented in the portfolio.
Investment Themes and Portfolio Changes
00:03:27
Speaker
Yes, with pleasure. um There are a series of growth themes in the funds, including aspiration, where you know increasing middle class wealth is driving higher demand for premium products and services, with portfolio examples, including AIA and Tisco Financial Group. Then ah building Asia, um for instance, the portfolio company Power Grid Corporation of India has regulated cash flows, supporting its dividends. Plus, the company is a beneficiary of the goal of providing electricity across the whole of India by the end of the decade.
00:03:57
Speaker
um And finally, technology enables include well-known names such as Samsung Electronics and PSMC, which are both industry leaders and our Aberdeen Asian Income Fund's largest holdings. Okay, so now we have a reasonably good feel for the fund. Maybe you could just give us some examples of more recent sort of portfolio activity. Sure, and maybe let me start by saying that portfolio turnover is well generally relatively low at around 20% per year, although activity has picked up in recent quarters to take advantage of market volatility. So over the last 12 months or so, um new holdings include Tencent, a major Chinese internet platform which now pays a dividend, SITC International Holdings, so a Hong Kong listed shipping company.
00:04:42
Speaker
and and about one degree, one of the largest Indonesian banks. On the other side of the ledger, complete disposers include Astra International, ah sold following receipts of a special dividend, China Wanki and China Merchants Bank. and The sales were as a result of a deteriorating Chinese macroeconomic backdrop, and a few lower conviction holdings where the proceeds were used to fund positions in companies with more attractive dividend growth and yields.
Fund Performance and Fee Structure
00:05:08
Speaker
Okay, so if as a potential investor, if I was to pick up the fund's latest annual results, what what are the key highlights that you would draw me to? hu So, Albert B. Neuschninger and van der Posterten have a wide set of results. In FY23, the company outperformed its reference index in both NAV and share price terms. The board negotiated a more competitive fee structure, and there was a significant increase in the dividend.
00:05:34
Speaker
The board announced a reduced fee structure which is based on the lower of market cap or net assets. ah This is around 23% decrease versus the previous fee and is equivalent to an estimated £664,000 saving based on the company's year-end assets. I believe that the shift to a market cap-based fee aligns the fund more closely with the shareholders, ah given the company's share of trading at a discount to an AV. Aberdeen will also invest six months of the fund's management fees in the company's shares. Aberdeen Asian Income Fund's FY23 total distribution of 11.75p per share, which was fully covered, was 17.5% higher year-on-year. This marks the 15th consecutive year of higher annual dividends, meaning the company is an AAC next generation hero and well on its way towards a 20-year record required to be classed as an AAC dividend hero.
00:06:30
Speaker
Over the last five years, Aberdeen Asian Income Fund's dividend has compounded at an annual your rate of more than 5%, and the fund currently offers around a 5.5% dividend yield.
Income Growth from Asian Equities
00:06:41
Speaker
ah but that's ah That's a really attractive track record on all the dividends. do Do you feel that an investors fully appreciate the income prospects in the Asia-Pacific region? That is probably a fair question. I think that some investors um consider Asia in terms of capital growth potential rather than income. However, in aggregate, dividends now make up more than 60% of Asian equity total returns. Also, um Asian cooperative balance sheets tend to be stronger than those in developed markets, which bodes well for you know continued positive income from Asian equities.
00:07:16
Speaker
So let's let's sum it up. I mean, why should an investor consider ah investing in the Asian income fund? The fund offers the prospects of both capital and income growth and could be considered as a core offering for investors seeking diversification through Asian equity exposure. Aberdeen Asian Income Fund's managers follow ah well Aberdeen's long-standing quality and value approach. ah Its Singapore-based location provides an advantage in terms of communication and developing strong corporate and non organizational relationships, along with seeking out opportunities that will may be overlooked by other Asian equity investors.
00:07:51
Speaker
Over the nation, income funds wider than the average discount ah versus its four P's in the AEC Asia Pacific equity income sector seems somewhat anomalous given its record of crowd performance versus its reference index and its attractive dividend yield.
Conclusion and Resources
00:08:06
Speaker
Melosh, thank you very much. That was an interesting run through on this high quality Asian income fund. You have been listening to Uncovering Trust, a podcast by the Edison Group. If you want to find out more about Aberdeen Asian Income Fund and other investment companies, we cover, please visit w www.eddisongroup.com and all that content is available free to view. Thank you.