Five things investors need to know.
1. The Asian return potential may be underestimated.
Asia is the region with the largest contribution to global growth, which is helped by favourable demographic trends and ongoing urbanisation. What may not be fully appreciated, is that dividends are becoming a more important feature in the Asia-Pacific region and make up more than 50% of stock market total returns. In aggregate, company balance sheets are robust, while strong free cash flow can support growing dividends. Also, valuations in the Asia-Pacific region are attractive in both absolute and relative terms.
2. abrdn Asian Income Fund follows abrdn’s quality and value approach.
abrdn Asian Income Fund (AAIF) was launched in December 2005 and is a Jersey-registered, closed-end investment company. It is managed by abrdn’s Asian equity team, which aims to generate an attractive total return from a diversified portfolio of Asia-Pacific equities, including those with above-average dividend yields. AAIF invests across the market cap spectrum and is unconstrained in terms of geographic and sector exposures. A maximum 20% of total assets is permitted in a single issuer, while the fund’s performance is measured against the MSCI AC Asia Pacific ex-Japan Index. Gearing of up to 25% of NAV is permitted in normal market conditions and is generally in a 5–12% range, as abrdn believes that gearing is one of the benefits of a closed-end fund structure.
3. Local managers provide a competitive advantage.
abrdn’s well-established Asian equity team is based in Singapore and is supported by a 40-strong group of analysts based in six locations in the Asia-Pacific region. This local presence ensures strong relationships with companies and relevant organisations, which can be an advantage in identifying opportunities that other investors may overlook. AAIF’s managers employ a collaborative five-step investment process: idea generation, research, peer review, portfolio construction and active engagement. Only stocks rated buy or hold by the analysts can be considered for inclusion in AAIF’s portfolio of 40–70 high-quality, attractively priced companies. Portfolio turnover is modest at around 35–40% per year, implying around a three-year holding period.
4. Favouring the highest-yielding regional markets.
In keeping with AAIF’s dividend growth focus, the fund tends to be overweight or market weight the three highest-yielding countries in the Asia-Pacific region – Taiwan, Singapore and Australia; these countries collectively make up more than 50% of the portfolio. There are underweight exposures to the growth markets of India and China, where dividends can be modest or companies prefer to use free cash flow to grow their businesses rather than return cash to shareholders. In terms of sectors, AAIF is overweight technology stocks, some of which feature in its list of top 10 holdings, which make up around 40% of the portfolio, including TSMC and Samsung Electronics. The managers find many good-quality, dominant global technology companies in Asia that have cash on their balance sheets and strong free cash flow. AAIF is underweight healthcare as, unlike in other major regions, in Asia there is a lack of the traditionally high-yielding major pharma stocks.
5. AAIF has a progressive dividend policy.
The company’s board employs a progressive dividend and AAIF is on course for 16 years of consecutive higher annual payments. This entitles the company to be classified as one of the AIC’s next-generation dividend heroes, which are funds with at least 10 but less than 20 years of higher annual dividends. Over the last five years, AAIF’s dividend has compounded at an annual rate of around 5%. At the end of H124, the company had revenue reserves of around 0.7x the last annual dividend payment.
Published 12 December 2024.
