Aberdeen Asian Income: A premium worth paying
The trust has made 111 per cent over the past five years while many of its peers have lost money.
The premium investors have to pay for Aberdeen Asian Income is more than justified by its outstanding long-term performance, according to investment trust expert Oriel Securities.
Of all the closed-ended funds recommended by the stockbroker, the trust ranks top for five-year results, with net asset value (NAV) up 111 per cent over the period.
It reported interim results last week and analyst Tom Tuite-Dalton says it has “smashed” its benchmark, with its share price up 12.9 per cent compared with 4.5 per cent from the MSCI AC Asia Pacific ex Japan index.
Investors have to pay 5 per cent above the NAV to get access, but Tuite-Dalton says it is still good value.
"If looking for long-term income growth in Asia, Aberdeen Asian Income is a core choice. It not only cuts the mustard relative to its peers, but also globally and over time, in our view justifying its superior 5 per cent premium rating," he said.
Data from FE Analytics
shows that the fund has the second-highest gains in its IT Asia Pacific ex Japan sector over three and five years, in both cases coming in behind Aberdeen Asian Smaller Companies.
Performance of fund vs benchmark and peers over 5yrs
Source: FE Analytics
Oriel also recommends the Schroder Oriental Income IT and Henderson Far East IT for investors seeking income in Asia, but the Aberdeen Asian Income IT has outperformed both.
However, at 3.4 per cent, its yield is lower than the Schroder portfolio – which pays out 3.9 per cent – and the Henderson fund – which distributes 5.5 per cent.
Our data shows that over a five-year period Aberdeen Asian Income also outperforms on various metrics.
It has added more Alpha to its benchmark than both the other trusts cited by Oriel, meaning that it has provided more gains to investors over and above what its benchmark achieved.
The max drawdown of the trust – the amount investors could have lost if they had bought and sold at the worst possible moments – is lower than its rivals, suggesting it protects investors’ money better, while it has achieved its returns with a lower volatility.
Performance of trusts over 5-yrs
Source: FE Analytics
The trust has a high exposure to Thailand – 13 per cent AUM – and Australia – 23 per cent – but is underweight China by 7 per cent, which Tuite-Dalton says is a key reason for its strong returns.
A defensive bias towards the telecoms and consumer sectors is another driver of outperformance, he added.
Hugh Young (pictured)
, an industry veteran with decades of experience in the Far East, heads up the trust.
In a recent note to investors, he wrote that the strategy of focusing on companies with strong balance sheets and sustainable business models will carry it through a period of low earnings growth in the region.
"Corporate earnings could stay muted in the near-term given the uncertain global economic landscape but your manager remains confident that the majority of the portfolio's core holdings, which are characterised by strong balance sheets and sustainable operating cash flows, are likely to maintain dividend payouts this year," he wrote.
Despite his warning about slower growth in Asia, Young remains convinced the region is better placed than the West with regard to the earnings outlook.
Tuite-Dalton has confidence in the manager’s predictions, praising the trust’s solid dividend progression, which is well covered by earnings.
The trust has a total expense ratio of 1.4 per cent and doesn’t charge a performance fee. It has £304m assets under management.