abrdn Asia Focus 02 December 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) is managed by a three-strong team consisting of Flavia Cheong, Gabriel Sacks, and Xin-Yao Ng who run a relatively concentrated portfolio of smaller companies from across the Asian region. They look to take advantage of the low levels of research in the asset class with a bottom-up, stock selection process to identify quality companies that others overlook. As such, the Portfolio will often look very different to those of its peers.
As a result of this approach, stock selection is often the primary driver of Performance. This has been the case in the near term, with a number of recent stock picks, particularly in Taiwan and India, performing well and contributing to the trust comfortably outperforming its benchmark and peer group over the past year. The backdrop for Asia has changed notably recently, with fiscal headwinds easing as well as stimulus measures in China leading to a pickup in sentiment. 
Despite this, the trust, along with the wider sector, continues to trade at a wide Discount. The current level, around one standard deviation wider than the five-year average, has come as a result of share price performance failing to keep up with NAV returns. The board has recognised this value and has undertaken a significant share buyback programme.
AAS also has an enhanced Dividend policy to support its investment case. Last year’s income, including another special dividend, was fully covered by revenue and left the trust with solid reserves. The trust’s historic yield is c. 2.9%, with dividends expected to grow over time.
Asian smaller companies are arguably the backbone of the growth opportunity of the region yet are chronically under-owned by investors. Managers Flavia Cheong, Gabriel Sacks, and Xin-Yao Ng have done an excellent job, in our opinion, to show what investors are missing out on by offering a portfolio of exciting, under-the-radar quality growth opportunities that have delivered impressive Performance as well as offering diversification benefits for a wider portfolio.
More recently, the managers have narrowed the underweight to India, primarily through tapping into the attractive pipeline of IPO opportunities, as well as being highly selective on the best opportunities in Southeast Asia. This includes sizeable off-benchmark positions in the likes of Vietnam which further helps differentiate the trust (see Portfolio).
We believe the trust’s current Discount level may offer an attractive entry point. The strong NAV performance of the past few months, driven by better sentiment towards the region and stock selection, has not been matched by share price returns. As such, we believe the discount not only belies the trust’s strong performance but also the potential of the wider asset class.
Bull
- Recent performance has been strong, driven by stock selection
- Trust’s discount has widened despite strong NAV returns
- AAS offers a modest and growing dividend which is well supported by revenue
Bear
- Asset class may be affected by increased geopolitical tensions
- Gearing can increase downside as well as upside potential
- Trust can often exhibit higher risk metrics than peers and benchmark
Fund History
