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26. Uncovering Trusts – abrdn Asian Income Fund (AAIF) – offering exposure to a region often overlooked by income seekers.
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In this episode, our director of content, investment trusts Milosz Papst discusses the recent announcement from AAIF’s board introducing an enhanced dividend policy and a three-year continuation vote. He also covers the significant increase in the fourth interim dividend of nearly 60% year-on-year. Moreover, Milosz examines the fund’s relative performance and portfolio positioning. He highlights the combination of Asia’s long-term growth potential and the attractive dividend growth and yield available in the region.
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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
Podcast Introduction and Guest Overview
00:00:05
Speaker
Welcome to Uncovering Trusts, a podcast by the Edison Group, a content-led IR business integrating analyst content, digital targeting, and investor engagement. Tune in to find interesting investment ideas and to stay on top of what's happening in the investment company sector.
00:00:21
Speaker
I'm your host, Will Manuel, and today I'm joined by Milos Pabst, Director of Investment Company Content at the Edison Group. who will talk about the Aberdeen Asian Income Fund, ticker as AAIF.
00:00:35
Speaker
Milos, thanks for joining us today. Hi Will, and good to be here. Great, so let's start by setting the scene.
Asian Income Fund and Its Growth Potential
00:00:42
Speaker
Why should an investor consider Asia for income?
00:00:47
Speaker
ah Yes, I think the key point to make is that some people may not appreciate that more than half of Asian listed companies are generating a dividend yield which is higher than 2.5% and the dividends make up more than 50% of Asia-Pacific total returns.
00:01:03
Speaker
um Asian dividend growth should be sustainable. gu Companies in the region have relatively low net debt to equity ratios and generate robust cash flows. so Okay, thanks. That
Fund Management and Strategy in Asia-Pacific
00:01:14
Speaker
makes sense. So moving on to the Aberdeen Asian Income Fund, regular listeners will remember that our last podcast about this company broadcast in June 2024. Howard, for anyone less familiar with the fund, can we have a brief introduction?
00:01:30
Speaker
Yes, sure. I'm happy to provide our listeners with some background. um Later this year, the fund will be celebrating its 20th birthday, having launched in December 2005. It is managed by Aberdeen's Asian Equity Team, which is based in Singapore and aims to generate an attractive total return from a diversified portfolio of Asia-Pacific equities, including those with above average dividend yields.
00:01:54
Speaker
um Its portfolio contains investments across the market cap spectrum and there are no constraints in terms of geographic and sector exposures. Right. Thank you. So I understand that earlier this year there was an interesting announcement from the board.
00:02:08
Speaker
Can you provide the details, please? Yes, you're right. ah Back in mid-January, the company's board announced some additional features which should further increase the appeal of this fund for investors seeking a high-quality, attractively valued Asian equity exposure.
00:02:23
Speaker
Firstly, an enhanced dividend policy. The company's investment objective emphasizes the importance of income and income growth as well as capital growth in delivering an attractive total return. and So in recognition of investors' appetite for yield, the company's dividend will be set at 1.5625% of its quarter end NAV, so 6.25% of NAV per year.
00:02:47
Speaker
and Now, based on the end of December 2024 NAV per share and the current share price, the notional annual dividend yield would be around 7%, so a quite attractive level. Yeah, I'd agree with that. And so when will the first enhanced dividend actually be paid?
00:03:02
Speaker
It will be based on the end March 2025 NAV and paid in May 2025. um I would add that in periods when the company's revenue is less than the dividend, distributions can be made from a combination of revenue and capital reserves.
00:03:17
Speaker
It is important to note that there will be no change to the investment policy as such. Right.
Fund Policy Changes and Shareholder Engagement
00:03:22
Speaker
And any other news about the company's dividends? Yes, the board also announced the fourth interim dividend for FY24 at 6.78 pence per share.
00:03:33
Speaker
It is a very significant increase of nearly 60% year-on-year, bringing the dividend 14.43 pence per share, which is around 23% higher than the annual dividend payment. fourteen point forty three ps for sure which is around twenty three percent higher then the f y twenty three annual divideent payment And by the way, this marks the 16th consecutive year of higher annual dividends, meaning that 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.
00:04:01
Speaker
OK, impressive. um So was there any other important information in the January press release? Yes, so along with the dividend news, the company's board also announced the introduction of a three-year continuation vote.
00:04:15
Speaker
ah This underscores the board's commitment to transparency and ensuring that shareholders have a direct say in the future of the company.
Investment Strategy and Market Trends
00:04:23
Speaker
The first vote will be held at the company's 2028 AGM and every three years thereafter.
00:04:29
Speaker
um if shareholders vote against the company's continuation in its current form, the board will offer proposals for the future of the company. Okay, so that's some the recent developments taken care of. Should we remind listeners about the company's portfolio, maybe?
00:04:46
Speaker
Of course. ah The company's managers follow Aberdeen's quality and value approach. They define quality businesses as those that are simple to understand, operating in a structural growth market, ah with a solid management team that focuses on having a strong balance sheet and generating robust level of cash flow and sustainable dividends.
00:05:04
Speaker
This, in turn, supports the fund's growing dividends. The portfolio typically has around 60 names, with the top 10 holdings making up around 40% of the fund. Befitting the multi-cap approach, around 20% of the portfolio is invested in smaller companies with market caps of up to £2 billion. pounds um The company's managers are supported by Aberdeen's 40 strong group of local analysts who can help to identify attractive opportunities that may be overlooked by other investors. so Okay, thanks. and And how is the fund currently positioned?
00:05:37
Speaker
Overall, the portfolio holds some of the most successful Asian companies, as well as younger firms with promising futures. China and India can generally be considered growth markets, so do not prioritize returns to shareholders, hence the company has a below-index exposure to these countries.
00:05:52
Speaker
That said, I would note that Chinese listed companies, ah both state-owned and private, have exhibited an increased focus on shareholder returns this year, with a prominent example being Tencent, which the Aberdeen Asian Income Fund added to its portfolio.
00:06:06
Speaker
ah The fund is overweight Singapore, which is the highest yielding country in the region, um and whose companies have grown out of their domestic market and are expanding overseas. Asia is home to some global dominant IT hardware names, such as TSMC, which is by far the largest holding in the portfolio.
00:06:23
Speaker
And IT t is the largest index exposure, and the companies overweight this sector. um it is ah It also has a high weight into financials, which is well quite common for an income fund. Okay, so can you update us now about some of the long-term structural growth trends that are represented in the portfolio?
00:06:41
Speaker
Sure, I would pick out three and maybe let's start with Aspiration, which stands for the growing percentage of the Asian population that has more disposable income, ah which is driving demand for higher quality goods and services.
00:06:54
Speaker
The fund's portfolio companies exposed to the theme include the life insurance-based financial services company, AIA, and the home appliance business, Maybia Group. The second theme is digital future with examples of portfolio companies including Sunwell Electric Machine Industry, which is active in precision models and thermal solutions, and Samsung Electronics.
00:07:16
Speaker
Finally, the technology enablers in the company's portfolio include the semiconductor business TSMC and the network communication equipment company Acton Technology. Right, thank
Performance Analysis and Future Outlook
00:07:27
Speaker
you. And um can you give us a sense of how the company has performed?
00:07:31
Speaker
Absolutely. The fund's performance outpays the performance of the MSCI AAC Asia Pacific Index over the last three and five years. um Here, I would note that Aberdeen Asian Income Fund has the low beta portfolio, meaning it should perform relatively well in choppy markets, but it's unlikely to keep up in strongly rising markets.
00:07:51
Speaker
um It is also worth noting that the fund has the second highest yield within the five strong AAC Asia Pacific equity income sector. and Okay, so Mirosh, thanks. That was an interesting update on the Aberdeen Asian Income Fund.
00:08:05
Speaker
um Any last comments? Anything you'd like to add? Yes, I would maybe add that this fund could be considered as a high quality core name for investment in Asia, ah which is a region with above average growth prospects. as Over the next 20 years, Asia is expected to be the largest contribution to global largest contributor to global growth.
00:08:25
Speaker
So along with the dividend discussion earlier, Asia offers good prospects for both capital and income growth and yeah therefore could well appeal to a broad range of global investors.
Podcast Conclusion and Call to Action
00:08:36
Speaker
I'm sure that's right. So um thanks once again, Milos.
00:08:40
Speaker
Looking forward to our next discussion in a couple of weeks. ah You've been listening to Uncovering Trusts, a podcast by the Edison Group. If you want to find out more about Aberdeen Asian Income Fund and other investment companies that we cover, please visit www.edisongroup.com.