~ Snehasish Chaudhuri, MBA (Finance)
Abdoun Asia Pacific Income Fund (New York Stock Exchange: FAX) is a closed-end fixed income mutual fund (CEF’) launched and managed by Aberdeen Standard Investments (ASIA’) Limited. The fund invests in bonds. Asia Pacific market. We invest primarily in government bonds, quasi-government bonds, and bonds of financial institutions. This fund typically invests in growing, large, low-risk, and reliable economies. FAX benchmarks its performance against the JP Morgan Asia Credit Index. Historically, FAX has produced high yields and has a low risk portfolio. Total returns aren’t attractive right now, but sustainable yields close to current levels should provide enough returns to keep investors interested in the fund long-term.
Abrdn Asia-Pacific Income Fund Inc’s investment objective is static
Abrdn Asia-Pacific Income Fund Inc aims to generate strong current income by combining top-down strategic fundamentals analysis with bottom-up security selection. The Fund has stated a policy to invest at least 80% of its assets under management (AUM) and borrowings made for investment purposes in Asian market bonds or securities denominated in or linked to Asian national currencies. . , the remaining 20% are traded in Australian and New Zealand currencies or on the markets of those countries.
Regarding Abrdn Asia-Pacific Income Fund Inc’s investment objectives, the company said: Shares, not only voted together as a single class, but also voted by the majority holders of the outstanding shares of the Fund’s preferred stock voting as a separate class regardless of series. ”
FAX selected the right currency, the right security, and the right market
In the Asia-Pacific region, most countries have growing economies. However, despite high growth rates, investing in sovereign debt in countries such as Pakistan, Myanmar and Sri Lanka carries significant risks. These economies are under enormous financial stress and are perceived as vulnerable. There are several other high-growth countries that are not under financial stress but are below investment grade, i.e. below the BBB- rating by S&P. Vietnam, Bangladesh and Iran are some of such markets. On the other hand, developed countries such as Japan, Singapore and Australia are low risk (highest investment grade rated) but low returns. Macau, Hong Kong, and New Zealand are also low-risk economies, rated investment grade, and exhibiting relatively high growth rates, although they are considerably smaller.
In my opinion, the ideal market is large, high-growth, low-ranking Fragile States Index 2022, investment-grade sovereign debt. India, Indonesia, China, Philippines, Malaysia, Thailand, Taiwan, and South Korea are the eight markets that meet the above criteria. Three-fifths of Fax’s funds are invested in bonds in these economies. In addition, the fund invests a further 11% in Australian bonds and its sovereign bonds are rated AAA. For reference, FAX is jointly managed by Aberdeen Standard Investments Australia Limited and Aberdeen Asset Managers Limited, and has also stated a policy of investing 20% of his in Australia and New Zealand.
Fax’s portfolio contains 227 securities with different maturities and coupons. The average credit rating across the portfolio is BBB and the fund earns a weighted average coupon of 5.73%. 72.25% of the assets are invested in bonds of various government agencies and financial institutions. About 65% of the investments are made in the currencies of these eight countries, and another 28% of the total fund is invested in US dollars. In this way the fund has chosen the right currency and the right market to invest its assets. I am bullish on the Abdon Asia Pacific Income Fund as we anticipate strong economic growth in these Asia Pacific markets. As the fund invests in high-quality bonds, the combination of attractive yields and strong fundamentals makes FAX most likely to generate strong returns for investors.
FAX scores highly in my “7-Factor Model for Evaluating Emerging Market Funds.”
Abrdn Asia-Pacific Income Fund was established on March 14, 1986 and has been paying dividends monthly since 2001. Average annual yields range from 7% to 10%. The average yield over the last 5 years is 9.5% and the yield over the last 12 months (TTM’) is 11.17%. The yield is quite good. In my opinion, FAX’s portfolio is relatively low-risk because it invests in growing, large, low-risk, and trustworthy economies. Most country sovereign bonds in its portfolio are investment grade. More than 75% of Fax’s investments are investment grade, and almost two-thirds of the fund’s investments are in his 5- to 10-year maturities.
According to my ‘Seven Factor Model for Valuation of Emerging Market Funds’, Abdoun Asia Pacific Income Fund is a pretty good fund. Meets minimum AUM and Yield requirements. The fund is also trading at a hefty 15.6% discount to NAV. The fund invests in the right market and the right currency. The lower risk and expected higher growth rate of such markets are expected to maintain current yield levels. In a worst-case scenario, investors can be assured of a return close to the average coupon the fund earns.
While the fund has been unable to generate positive total returns over the past two years, FAX posted an average annual total return of 9.2% between 2016 and 2020. Current income is over 6%. As such, I am hopeful of his FAX ability to bring long-term growth to investors. His current discount of 15.6% is well above his five-year average discount to NAV of 13%. In that sense, the Abdoun Asia Pacific Income Fund is relatively inexpensive, which makes it even more lucrative.