abrdn Asia Focus 03 May 2023
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.
To maximise total return over the long term from a portfolio of predominantly smaller quoted companies in the economies of Asia, excluding Japan.
Source: Morningstar, abrdn (gearing as at 21/04/2023)
abrdn Asia Focus
Hugh Young; Gabriel Sacks; Flavia Cheong; Neil Sun;
Association of Investment Companies (AIC) Sector
Asia Pacific Smaller Companies
Dividend Distribution Frequency
Latest Market Capitalisation
Latest Net Gearing (Cum Fair)
Latest Ongoing Charge Ex Perf Fee
(Discount)/ Premium (Cum Fair)
Daily Closing Price
abrdn Asia Focus (LON:AAS) is a trust focussed on opportunities from the smallest companies in the Asian region, typically investing in the bottom 20% by market cap in each country. The trust is managed by a four-strong management team who have access to abrdn’s global analyst resources, including significant on-the-ground support. The aim is to have an informational edge in the large, but under researched, Asian smaller companies space (see Management). As such, the trust will likely look very different to the index and offer a portfolio of companies that is unlikely to be seen elsewhere (see Portfolio).
The managers are conscious of the risk in this space. Consequently, they have built a portfolio with diversification across sectors, countries and investment styles, with the aim of offering a lower-risk approach to the exciting growth opportunity that it offers. Despite this diversification, stock selection is intended to be the primary driver of Performance, aided by the experience of the managers and the size of the team. The diversified approach is designed to lead to incremental outperformance each year, rather than knock-out numbers. This has led to strong long-term outperformance of the index over five years.
Since 2018, the managers have been rotating the portfolio to the new breed of Asian companies, such as innovative tech firms, but only at sensible valuations. This has resulted in a narrowing of the underweight to China, where they are starting to find good ideas, having previously been sceptical. Nevertheless, the portfolio has retained its longstanding tilt to companies in South East Asia, relative to the more developed north Asian markets.
Much of the world’s growth over the past few years has been driven by Asia, and smaller companies often outperform their larger peers over the long term. This trust offers exposure to both of these exciting factors, but in a risk-controlled manner. We think that not only does this make the trust attractive in its own right, but also that it makes it a potential complementary holding with either passive Asian exposure or an active fund, focussed on larger, more mainstream Asian companies (see Portfolio).
Despite the growth potential, the region remains significantly out of favour. The managers have pointed to a more benign inflation picture and strong growth outlook as reasons to be more positive. They believe the trust’s quality metrics are particularly attractive, as they are considerably better than those of the market, and yet valuations are only marginally higher (see Performance). AAS has the widest Discount in the limited peer group, which we believe adds to the compelling opportunity for long-term investors.
The trust has recently adopted a new enhanced income policy. This has allowed it to greatly increase its payout, to offer an attractive yield of 3.1%, which we believe adds another appealing element (see Dividend). The current yield is in line with that of the index, despite the arguably better growth on offer in the portfolio, and that more of this income has been generated by the underlying portfolio than the managers were expecting. We believe that this could lead to a further increase in the dividend in this financial year.
- Long-standing management team with deep local analyst resource
- Attractive dividend to complement total returns
- Trust is trading at a wide discount
- Diversified approach, which may limit outperformance in any one year
- Gearing can exacerbate losses, as well as improve returns
- Sector has been at a sustained discount