abrdn Asia Focus 25 June 2024
Disclaimer
This is a non-independent marketing communication commissioned by abrdn. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
abrdn Asia Focus (AAS) owns a relatively concentrated portfolio of smaller companies from across the Asian region. The three-strong management team of Flavia Cheong, Gabriel Sacks and Xin-Yao Ng use a bottom-up, stock selection driven process to identify companies that have been overlooked due to a lack of research coverage in the market. This has contributed to strong Performance over both the near and long term, especially in absolute terms, with Asian smaller companies outperforming larger-cap peers.
The handover of management duties has recently been completed, following the retirement of veteran manager Hugh Young. Gabriel and Flavia have worked alongside Hugh for a number of years to ensure continuity of the strategy. The managers have made tweaks to the tail of the portfolio, exiting a small number of legacy positions with few near-term catalysts, allowing capital to be deployed in companies with stronger earnings growth potential (see Portfolio).
The trust implemented a new Dividend policy in 2021, which continues to offer investors a modest income alongside the capital growth goal. Underlying revenue remains on track to pay an increased dividend at the end of the trust’s financial year, indicating a potential yield of 2.3%.
Despite the strong performance of the asset class and the trust, the shares of AAS remain at a wide Discount to NAV. The level has traded within a range for much of the past five years, though has widened out in the near term.
We believe Asian smaller companies are an overlooked asset class. Not only do they offer diversification to their large-cap peers, and arguably more direct exposure to the growth themes driving the region, but their performance has been very strong, both in absolute terms and relative to large-caps over the short and long term (see Performance). AAS offers investors a very compelling way of accessing these attractive characteristics in our opinion, with a bottom-up, stock selection driven process driving outperformance of the index whilst still being mindful of risk (see Portfolio).
Furthermore, the relatively new Dividend policy has also contributed to the trust trading on a modest yield, further adding to the investment case in our opinion. We understand income generation has been healthy this year, with upside potential from a special dividend, which has often been a feature.
Furthermore, the trust is currently trading at a wide Discount to NAV. Whilst this has remained within a range for much of the past five years, we believe there are factors on the horizon, such as the tender offer, which could provide some upside pressure. As such, the current level could prove an attractive entry point for long-term investors.
Bull
- Trust has delivered strong absolute and relative performance versus index and large-cap peers
- Discount remains wide and a potentially attractive entry point
- Dividend is well supported by revenue and adds appeal to the investment case
Bear
- Trust runs structural gearing, which can amplify downside as well as upside potential
- Management handover, whilst well planned for, could lead to changes
- Discount has remained wide for a prolonged period
Fund History
