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49. Uncovering Trusts – Aberdeen Asian Income Fund (AAIF)
51 Plays6 hours ago
In this episode, our director of content for investment companies, Milosz Papst, talks about Aberdeen Asian Income Fund (AAIF). He starts by explaining why global investors could benefit from an allocation to Asian equities, given the region’s above-average growth prospects and increasing dividend opportunities, before providing a brief summary of the company. Milosz highlights how the fund offers exposure to a diversified group of high-quality, reasonably priced Asian companies that should perform well in gradually rising, broad markets, while offering some protection during choppier periods. He then discusses the shape of the portfolio and the transactions undertaken since Isaac Thong became lead manager in May 2025.
Milosz points to the fund’s strong outperformance versus the MSCI AC Asia Pacific ex-Japan Index over the last five years, and how the company stacks up against the four other funds in the AIC Asia Pacific Equity Income sector. He then focuses on the important changes that were announced last year: the introduction of an enhanced dividend policy and a three-year continuation vote. AAIF’s dividends are now set at 1.5625% of quarter-end NAV and the company is just a couple of years away from joining the select list of the AIC’s dividend heroes, which are companies with at least 20 consecutive years of higher annual dividends.
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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 to 'Uncovering Trust' Podcast
00:00:05
Speaker
Welcome to Uncovering Trust, a podcast by Edison Group. I'm your host, Neil Shah, and today I am joined by Milos Paps, Director of Investment Company Content at Edison, who will talk about Aberdeen Asian Income Fund, ticker AAIF.
Global Investment Shift to Asia
00:00:19
Speaker
Milos, thank you for joining us today. Thanks, Neil. Great to be here. Last year, global investors decided that the US was no longer the only game in town and other regions performed relatively better. With this in mind, shall we start by discussing why an allocation to Asia is well worth considering?
00:00:39
Speaker
Yes, that's a good idea. um Asia is a region with above average growth potential that remains attractively valued and has so delivered solid total returns for shareholders. ah What may not be fully appreciated is its income prospects. um Since the beginning of the century, more than 50% returns have come from dividends.
00:01:00
Speaker
Interestingly, in general, there has been an increase in the dividend culture among Asian corporates.
The Growth and Potential of Asian Equities
00:01:05
Speaker
um These companies are generating record levels of free cash flow, which, um along with strong balance sheets, have supported much higher levels of organic earnings and dividends growth in recent years. um There are many more income opportunities available in Asia compared with the UK.
00:01:23
Speaker
up While Asian equities performed well in 2025, the outlook remains positive. Last year, stock price moves were largely due to higher valuation multiples. And ah while the revaluation versus developed markets may have further to go, corporate earnings could well be the next driver of Asian stock market ah performance.
00:01:46
Speaker
There are some overlooked areas in the region, such as in South Southeast Asia, which may provide good investment opportunities outside of the more widely held Asian names.
00:01:59
Speaker
Milos, thank you. um Now, with that backdrop in mind, can you ah start with a brief summary of Aberdeen Asian Income Fund, which we featured in a podcast, I think, back in January 2025?
Isaac Thong's Fund Strategy
00:02:12
Speaker
Yes, that's correct. um Of course, the fund is a Jersey registered closed-end investment company that launched in December 2005. Its lead manager is Isaac Thong, who works alongside Eric Chen.
00:02:28
Speaker
Isaac joined Aberdeen's Asia Pacific equities team in May 2025. ah The managers are based in Singapore, so benefit from the proximity to the fund's investment universe in terms of building relationships and seeking out interesting investment opportunities.
00:02:45
Speaker
Isaac and Eric aim to generate an attractive total return from a diversified portfolio of Asia-Pacific equities, including those with above average dividend yields. um The fund's performance is measured against the MSCI-AC Asia-Pacific Ex-Japan Index.
00:03:03
Speaker
Okay, so experienced ah team and based in in the region. um Now let's consider in more detail what Abedin Asian Income Fund actually offers investors. What can you tell us about that?
00:03:16
Speaker
Well, the fund provides access to the current and future leading, reasonably priced, dividend-paying Asian companies. This strategy has continued under the new manager.
00:03:28
Speaker
The portfolio is diversified by geography, sector, market cap, And so its prudent nature means that Aberdeen Asian Income Fund's share price is unlikely to keep up with strong growth markets, but should ah perform relatively well during gradually rising markets with you know broad participation.
00:03:48
Speaker
The managers invest in high-quality dividend franchises, um which are robust businesses generating reliable free cash flow and have strong dividend policies. Aberdeen Asian income funds' dominant feature is quality. Portfolio companies tend to have more stable and predictable earnings, which provide a reliable buffer during market turbulence.
00:04:11
Speaker
um Isaac and Eric ensure that the Aberdeen Asian Income Fund is um adequately diversified and the portfolio is not overexposed to a single market factor.
00:04:23
Speaker
um While they're aware of the macroeconomic environment, the stock selection approach is based on bottom-up considerations. Okay. i always find it fascinating when there's a sort of change in manager. Were there any notable portfolio changes when Isaac became lead manager?
Strategic Adjustments and Holdings
00:04:40
Speaker
After Isaac's appointment in May 2025, the managers took advantage of market volatility to reduce the portfolio's active geographic positions and increase stock-specific risk while retaining the focus on quality and income.
00:04:57
Speaker
Okay. And so what does the portfolio look like today? Yes. So at the end of 2025, there were 56 holdings with the top 10 making up around 44% of the portfolio. The top three holdings were Taiwan Semiconductor Manufacturing Company, regularly referred to as TSMC, with a below index 11.7% weight.
00:05:19
Speaker
Samsung Electronics at 6.6% and Tencent Holdings at 6.1% of the portfolio. Samsung and Tencent had positive active weights versus the benchmark. So that the one that just mentioned, the MSCI AC Asia x Japan index.
00:05:37
Speaker
um Although there has been a reduction in active geographic allocations, there are some deviations versus the index. ah India, for example, has a notable below-index weight. In aggregate, valuations are unattractive and Indian companies tend to reinvest free cash flow rather than returning cash to shareholders.
00:05:55
Speaker
Okay. And um what recent sort of ah transactions have there been in the portfolio? Can you shine a light in terms of you know what movements there have been? Sure. um Activity has been higher than normal in 2025, which is understandable with a new manager at the helm. um So I'll run through some of the new holdings. Amcor is a global packaging company that was founded in Australia, but is headquartered in Switzerland.
00:06:24
Speaker
ah The company is upgrading its products make product mix with a shift towards higher growth segments such as healthcare and beauty while divesting non-core assets. The integration of acquired Berry Global should add to the management management team's record of extracting M&A synergies.
00:06:41
Speaker
And Amcor offers an attractive above 5% dividend yield. um Another company is DB Insurance, which is a modestly valued South Korean insurer with strong balance sheets, high return on equity, and attractive dividend yield.
00:06:58
Speaker
The company's high solvency ratios support sustainable dividend payments, and so DB Insurance recently made an accretive acquisition of Fortegra in the U.S.
00:07:09
Speaker
Then um Medibank is a very high quality player in the Australian private health insurance sector. um This standing should support the company's market leading profitability and returns through the cycle, ah given the strength of its franchise and management.
00:07:28
Speaker
While growth is relatively modest compared with Asian companies, Medibank has robust cash generation, health dividends and defensive characteristics, and its valuation is relatively undemanding.
00:07:42
Speaker
I would also highlight SK Hynix, which is a South Korean pure-play memory semiconductor company specializing in high bandwidth memory chips, which are in high demand due to the growth in AI processing, such as machine learning and neural network AI.
00:07:57
Speaker
SK Hynix's solid leadership position should protect its margins, and the company is expected to be a substantial dividend payer from 2027 on the back of its free cash flow-based dividend policy.
00:08:10
Speaker
And finally, Yutong Bus is a leading Chinese bus manufacturer with good prospects for global expansion based on its strong R&D capabilities, electric powertrain technology and broad international dealership network.
00:08:22
Speaker
A focus on high value, high margin orders and efficient capital allocation helps to support cash flow generation and a high payout ratio. ah The new holdings were funded by the sale of a range of lower conviction positions.
00:08:38
Speaker
Okay, so quite an active year. And let's see how that translated into
Fund Performance and Shareholder Commitment
00:08:43
Speaker
performance. How 2025 shape up for the fund Aberdeen Asian Income Fund's relative performance is showing steady improvement. Last year, the company outpaced the benchmark's total return performance in both NAV and trade price terms.
00:08:59
Speaker
Looking at the performance at the end of January 2026, the fund's NAV total return remained considerably ahead of the benchmark's total return over the last five years and modestly ahead of the benchmark over the last 12 months and 10 years.
00:09:13
Speaker
Now, considering Aberdeen Asian Income Fund versus its peers in the well relatively small five-strong AAC Asia-Pacific equity income sector, it has a solid above-average total return over the last five years. um The company also offers an attractive 5.6 dividend yield, which is the second highest in the sector. um Despite these positive attributes, the fund has the second-widest discount in the sector, which seems unwarranted.
00:09:41
Speaker
Wow, that's ah amazing. That's astonishing. I mean, so the the current relative relative valuation is is a real surprise, ah particularly when you consider all the board's initiatives last year.
00:09:52
Speaker
Yes, I agree. um Just to recap, in early 2025, Aberdeen Asian Income Funds Board announced the introduction of an enhanced dividend policy and a three-year continuation vote, which should increase the company's appeal to both existing and prospective shareholders.
00:10:07
Speaker
The fund's dividends are set at 1.5625% of its quarter-end NAV. um Also, once the FY25 fourth interim dividend is paid, ah the company will have a 17-year record of higher dividends, meaning it is just three years away from earning its place on the list of AAC dividend heroes.
00:10:29
Speaker
Currently, there are just 20 investment companies that have the requisite 20 years or more of consecutive higher annual dividends to become a dividend hero. At the introduction of a continuation vote underscored the board's commitment to transparency and ensures that shareholders have a direct say in the future of the company. The first vote will be held at Aberdeen Asian Income Fund's 2028 AGM and every three years thereafter.
00:10:56
Speaker
If shareholders vote against continuation in its current form, the board will offer proposals for the future of the company. Okay, thank you, Milos. And on that note, it's time to wrap up for date today. Thank you, Milos, for another really informative rundown on ah the fund. ah From what we have discussed, despite its income designation, Aberdeen Asian Income Fund looks like a good way to gain exposure to both capital and income growth in the Asian region.
Podcast Conclusion
00:11:23
Speaker
region Fair summary?
00:11:25
Speaker
Thanks, Neil. If you have been listening to the Uncovering Trust podcast ah by Edison Group, for more information on Aberdeen Asian Income Fund and other investment companies we cover, please visit our website on www.edisongroup.com.