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magazineBuy Aberdeen Asian Income Fund at a discount while you still can
Despite a narrowing of the discount to net asset value (NAV) from 11% to 7.7% at Aberdeen Asian Income (AAIF) there is still a value opportunity here.
The positive re-rating should continue as investors pick up on the fund’s improving performance, attractive income credentials – a 4.2% yield – and continuing cheap valuation.
Aberdeen Asian Income seeks to provide investors with a total return primarily by investing in Asia Pacific shares, including those with an above-average yield, and aims to grow dividends (paid quarterly) over time.
Investment bank Stifel argues the recent narrowing of the NAV discount has further to go as performance has improved ‘substantially’ since the manager modified the investment process.
Although its five-year investment performance is the weakest within its peer group, Aberdeen Asian Income is the second best performing Asian income trust over three years on an NAV total return basis.
Analysts at Stifel say: ‘Aberdeen Asian Income Fund remains our preferred choice in the Asian Income trust space. It is the cheapest trust in the sector by some margin, its investment style could be viewed as appropriate for a weakening economic backdrop and its performance has improved markedly since the manager reviewed their investment approach.’
Aberdeen Asian Income Fund outperformed on a relative basis during 2018 as volatility returned to the markets. While its NAV total return fell 5.5%, this was ahead of the 8.3% decline for the MSCI All Country Asia Pacific ex-Japan index thanks to a focus on quality companies with strong franchises exposed to longer term growth trends and with the balance sheets to support plump dividend payouts.
Despite a strong rally in Asian markets since the start of 2019, the trust has managed to keep pace.
Prospective investors are buying exposure to such locations as Singapore, a gateway to the emerging Asian economies and a good source of well governed, cash generative, dividend-paying companies such as tech firm Venture Corporation and conglomerate Jardine Cycle & Carriage.
Underweight China, the manager nevertheless maintains its positive view on the Asian powerhouse’s long-term consumer demand potential.
Other portfolio positions include TSMC and Samsung Electronics, a tech pair with consistently growing dividends, Indian IT services firm Infosys and Korea-listed LG Chem, which has a platform for growth in the electric vehicle battery market.
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