ABRDN ASIAN INCOME FUND shifts focus away from China in search of income

The performance of investment fund Abrdn Asian Income – like all funds investing in this part of the world – is intrinsically linked to events in China.

When China faces challenges, as it is now in the form of a faltering real estate sector and a slowdown in economic growth, all Asian stock markets get the jitters.

Yet the managers of this £330 million listed fund are doing everything they can to mitigate its impact. They have limited the fund’s exposure to Chinese equities – while pursuing a large share of investment returns for shareholders in the form of dividends from the 65 investments.

Although the trust posted a total loss of 5 percent last year, the chase for revenue is proving successful. In the current financial year, the trust board expects to pay a total dividend of 10.6 pence per share to shareholders.

If this expectation is met, it would mark a 15th year of consecutive annual dividend increases and a 6 percent improvement over last year. The income corresponds to an annual dividend of 5.1 percent.

“Income-wise, things look good,” said Yoojeong Oh, co-administrator of the trust. Dividend payments to shareholders this year will be fully covered by the income we receive from our holdings. As a result, we do not have to draw on the income we have in the reserves of the trust, which we did in 2021 and 2022.”

The fund currently holds the equivalent of more than half a year’s income in reserve, which can be drawn upon as needed.

Singapore-based Oh says dividend prospects in Asia are healthy, with many of the region’s listed companies supported by strong balance sheets and low debt. On China, Oh says the trust has just over 10 percent of its assets in the country — significantly less than its benchmark’s 28 percent.

“It is difficult for us to predict how the Chinese government will stimulate growth while helping the real estate sector,” she says. ‘It is a challenge.’

Still, Oh says there is also a glimmer of good news to report. For example, many Chinese consumers are still willing to spend money, especially on travel. Regarding the geopolitical tensions between China and Taiwan and China and the US, Oh is cautious.

“Yes, they concern us,” she says. “But foreign money is still flowing to Taiwan. There are many ways these tensions can manifest themselves – and not all of them are negative.’

She says countries like Vietnam and Malaysia benefit from foreign investment as Western countries look to reduce their reliance on China as a source of goods.

She also believes the world’s hunger for artificial intelligence is a big boost for chipmakers such as Taiwan’s TSMC (the fund’s largest holding company) and South Korea-based Samsung.

One of the trust’s best-performing stocks over the past year has been Taiwan-based Sunonwealth Electric, which builds fans that cool computers and data storage units.

The share price is up more than 240 percent, mainly due to the enthusiasm for AI-related stocks.

Taiwan and Singapore are the trust’s largest country holdings; the trust also holds a number of key positions in Australia.

The Abrdn Trust is one of five funds that aim to generate a mix of income and capital returns in Asian equity markets – the rival funds are managed by Invesco, JP Morgan, Janus Henderson and Schroders.

The fund’s total annual fees are just over 1 percent, market identifier code B0P6J83 and ticker AAIF.