Transcript
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.
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?
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.
Speaker: Interestingly, in general, there has been an increase in the dividend culture among Asian corporates. 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.
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.
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.
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?
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.
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.
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.
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?
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.
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.
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.
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.
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?
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Speaker: Okay, so quite an active year. And let's see how that translated into 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.
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.
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.
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.
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.
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.
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.
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. region Fair summary?
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.
