Aberdeen Standard Asia Focus (AAS), formerly Aberdeen Asian Smaller Companies, aims to generate long-term capital growth by investing in high-quality Asian smaller companies. The management team has a valuation-sensitive approach and aims to hold companies for the long run.
Relative performance has been strong over the past year, with the trust outperforming the MSCI AC Asia Pacific ex-Japan Small Cap index by 5%, although shareholders have made almost twice that thanks to the narrowing discount. The trust lost much less than the market during the slump in the fourth quarter of 2018, with the defensive qualities of its portfolio having the expected effect. It also gained more than the market during the May and June 2019 rally thanks to its large overweight to India, which led Asian markets following Prime Minister Narendra Modi’s emphatic election victory.
Hugh Young, one of the most experienced fund managers in the Asian market, was named lead manager in November last year as part of an overhaul requested by the board. He has cut the number of holdings and increased the concentration in the highest-conviction ideas in order to increase the potential for outperformance. The strategy, however, remains the same. The focus is on identifying companies with high-quality financials and management, and buying in at attractive valuations and holding for the long run.
The approach is highly active, with some significant over and underweights in terms of country, sector and holding. For example, the trust has long been underweight China, largely due to corporate governance concerns. On the other hand, its overweight to India is a multi-year feature and likely to remain. The manager’s judicious use of increasing gearing into the fourth quarter of last year has also helped performance.
The discount has responded somewhat to the overhaul and the improving performance, with the average for 2019 being 11.7% compared to 14% for 2018. However, it still trades 11.5% below par at the time of writing.
The trust yields 1.5% and, while this is not high, the track record of dividend growth is strong, with 6.8% compound growth per annum achieved over the past five years. In fact, the trust has managed to grow or maintain its dividend in each year since launch in 1995 – excluding 1997 and 1998 – and investors at launch would now be earning a 17p dividend on their initial investment of 100p, representing a compound growth of around 7%.
The improvement in NAV performance over the past year has been impressive, as a period of strong stylistic headwinds has come to an end. With the outlook for Asian markets looking cloudier, we could well see the trust’s more defensive characteristics doing relatively well in the coming months. We don’t think this potential and the improving NAV performance has been fully reflected in the share price yet and continue to consider the discount of 11.9% to be an interesting value opportunity. Aberdeen Standard Asian Focus remains in our portfolio of discount opportunities.
|A highly attractive discount relative to peers with an improving performance record||The strategy has led the trust to have long-term underweights to China and technology; if these outperform it will lag|
|A more concentrated portfolio will increase the potential for the trust to outperform
||More concentrated portfolio will lead to higher NAV volatility / higher tracking error, which could lead to periods of underperformance
|The experience of the manager is second to none