abrdn Asian Income Fund — Quality and value focus with an attractive yield

abrdn Asian Income Fund (LSE: AAIF)

Last close As at 22/06/2024

GBP2.14

−1.00 (−0.47%)

Market capitalisation

GBP342m

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abrdn Asian Income Fund — Quality and value focus with an attractive yield

abrdn Asian Income Fund (AAIF) is managed by abrdn’s Singapore-based Asian equity team. As a local investor, the research team collectively speaks multiple Asian languages, so it can communicate with companies’ management teams in their native tongues. A local presence also offers the potential of identifying interesting opportunities that may be overlooked by other investors. AAIF is a low-beta fund, with its managers seeking both income and capital growth and an attractive yield. Stocks are selected on a bottom-up basis and geographic and sector allocations can vary markedly compared with exposures in the MSCI AC Pacific ex Japan Index. AAIF offers an attractive yield and is building on its record of 14 years of consecutive dividend growth.

Melanie Jenner

Written by

Mel Jenner

Director, Investment Trusts

Abrdn Asian Income Fund_resized

Investment Companies

abrdn Asian Income Fund

Quality and value focus with an attractive yield

Investment companies
Asia Pacific Equity Income

12 December 2023

Price

195.0p

Market cap

£326m

Total assets

£410m

NAV*

224.4p

Discount to NAV

13.1%

*Including income. At 7 December 2023.

Yield

5.4%

Shares in issue

167.4m

Ticker/ISIN

AAIF/GB00B0P6J834

Primary exchange

LSE

AIC sector

Asia Pacific Equity Income

Financial year end

31 December

52-week high/low

236.0p

185.0p

262.4p

216.6p

*Including income.

Gearing

Net gearing at 8 December 2023

6.2%

Fund objective

The investment objective of abrdn Asian Income Fund is to provide investors with a total return primarily through investing in Asia-Pacific securities, including those with an above-average yield. Within its overall investment objective, the company aims to grow its dividends over time.

Bull points

An unwavering focus on high-quality companies should ensure less performance risk over the long term.

Proprietary ESG research has been an integral part of the research process for many years.

Long-term approach results in low portfolio turnover.

Bear points

An improvement in investor sentiment could favour the performance of capital growth rather than income stocks.

Due to its large underweight exposure, AAIF’s relative performance is likely to struggle if Chinese stocks rally significantly.

Discount is persistently wider than AIC Asia Pacific Equity Income sector average.

Analyst

Mel Jenner

+44(0)20 3077 5700

abrdn Asian Income Fund is a research client of Edison Investment Research Limited

abrdn Asian Income Fund (AAIF) is managed by abrdn’s Singapore-based Asian equity team. As a local investor, the research team collectively speaks multiple Asian languages, so it can communicate with companies’ management teams in their native tongues. A local presence also offers the potential of identifying interesting opportunities that may be overlooked by other investors. AAIF is a low-beta fund, with its managers seeking both income and capital growth and an attractive yield. Stocks are selected on a bottom-up basis and geographic and sector allocations can vary markedly compared with exposures in the MSCI AC Pacific ex Japan Index. AAIF offers an attractive yield and is building on its record of 14 years of consecutive dividend growth.

NAV outperformance vs MSCI AC Asia Pac ex Japan Index over three years

Source: Refinitiv, Edison Investment Research

Why consider AAIF?

Investors may not automatically think of Asia in terms of income, but since 2000, Asia Pacific ex-Japan has generated higher total returns than other developed and world markets, and more than 50% of these returns have come from income rather than capital gains.

abrdn benefits from the largest on-the-ground research footprint in Asia, which affords very broad access to businesses and important organisations. The company’s focus on quality is demonstrated by AAIF’s portfolio metrics, with a higher operating margin, a higher return on equity and a higher dividend yield than the MSCI AC Asia Pacific ex Japan Index. AAIF also has superior ESG ratings versus the index in all three categories: environmental, social and governance.

Compared with the MSCI AC Asia Pacific ex Japan Index, on a geographic basis, notable differences are a large overweight to Singapore, which is one of the highest-yielding Asian markets, and a notable underweight exposure to China, where many of the index constituents do not meet the managers’ quality and value criteria. The fund’s largest sector exposure is technology and it has an above-index weighting; its two largest holdings are industry leaders Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung Electronics.

With its 14 years of consecutive dividend growth, AAIF qualifies for the AIC’s list of next-generation dividend heroes (funds with more than 10 but less than 20 years of year-on-year dividend growth). It offers an attractive 5.4% dividend yield, with dividends paid solely out of revenue, unlike some of its peers that distribute capital.

AAIF: High-quality fund offering an attractive yield

AAIF’s focus on quality companies that can grow earnings and dividends over the long term means that performance should lag in a strong market but perform relatively better in periods of market weakness, and this is borne out by the upside/downside analysis below. The fund has modest exposure to growth stocks whose valuations could continue to struggle if interest rates remain higher for longer.

Asia may not be front of mind when investors consider income generation. However, over the last 20-plus years, more than 50% of Asian equity total returns have come from dividends, and dividend growth has exceeded that in Europe and the US. AAIF offers an above-market dividend yield, helped by its exposure to the three highest-yielding markets in Asia: Singapore (AAIF is considerably overweight versus the MSCI AC Asia Pacific ex-Japan Index), Taiwan (overweight versus the index) and Australia (broadly in line). Seasonally, June to August is a strong period for dividend payouts and AAIF’s managers may increase the fund’s exposure to companies that pay annual dividends ahead of their distributions.

AAIF’s upside/downside analysis

The low beta nature of AAIF’s portfolio is highlighted by its upside/downside analysis. Over the last decade its cumulative upside capture of 85.2% is very similar to its downside capture of 84.1%. As these numbers are below 100%, it implies that the fund will move around 15% less than the MSCI AC Asia Pacific ex-Japan Index during both rising and falling markets.

Exhibit 1: AAIF’s upside/downside capture over the last 10 years

Source: Refinitiv, Edison Investment Research. Note: Cumulative upside/downside capture calculated as the geometric average NAV total return (TR) of the fund during months with positive/negative reference index TRs, divided by the geometric average reference index TR during these months. A 100% upside/downside indicates that the fund’s TR was in line with the reference index’s during months with positive/negative returns. Data points for the initial 12 months have been omitted in the exhibit due to the limited number of observations used to calculate the cumulative upside/downside capture ratios.

ESG is an integral part of AAIF’s investment process

abrdn believes that ESG factors are financially material and affect corporate performance. MSCI has awarded AAIF an ‘A’ ESG score, and it has higher ratings in all three areas compared with its benchmark: environmental score of 5.7 versus 5.3 (at end-August 2023), social 5.1 versus 5.0 and governance 5.7 versus 5.1; the fund’s 6.3 ESG quality score compares with 6.0 for the benchmark.

AAIF provides exposure to several growth themes

Growth themes and specific company exposures within the portfolio include:

Consumer aspiration – AIA (Hong Kong – multinational insurance and finance), TISCO Financial Group (Thailand – consumer lending).

Building Asia – CapitaLand Investment (Singapore – real estate investment manager), Siam Cement Group (Thailand – cement and building materials).

Digital future – Accton Technology (Taiwan – artificial intelligence (AI) server switches), Sunonwealth Electric Machine Industry Company (Taiwan – precision motors and thermal solutions).

Going green – LG Chem (South Korea – petrochemicals, advanced materials and life sciences), Power Grid Corporation of India (India – electricity transmission).

Tech enablers – Samsung Electronics (South Korea – consumer electronics), TSMC (Taiwan – semiconductors).

The investment backdrop

Within Asia, the managers consider that the region’s economies are generally in good shape. Compared with those in developed markets, Asian governments spent less during the global pandemic and have less debt, allowing them more fiscal and monetary policy flexibility. Corporate balance sheets are also less indebted than those in the West, providing more options for cash flow usage including investment in future growth, paying down debt or returning cash to shareholders via share repurchases or dividends. The Asian region is benefiting from manufacturers diversifying their supply chains, with less reliance on China; there is increased demand for production capacity in countries including Malaysia and Vietnam. Also, the Indian government is encouraging manufacturers into the country via tax breaks and reduced bureaucracy. Within the technology sector, growth in AI should be supportive for the businesses of Asian semiconductor and consumer electronics companies.

As shown in Exhibit 2, Asian markets look relatively attractively valued versus the MSCI AC World Index on all three metrics shown. This world index is dominated by the US (63% at end-October 2023), where valuations look stretched in both absolute and relative terms. AAIF’s managers note that Asia also has dividend support as, in aggregate, dividends have been growing steadily, with Asia having the best dividend growth compared with pre-COVID-19 levels versus the major markets. They anticipate that 2024 dividend growth will also be healthy, led by sectors such as consumer services and staples, and insurance.

Exhibit 2: MSCI index valuation multiples (at 31 October 2023)

Forward P/E (x)

Price/book (x)

Dividend yield (%)

MSCI AC Asia Pacific ex-Japan

12.1

1.5

3.1

MSCI AC Asia Pacific ex-Japan High Dividend Yield

8.0

1.0

6.3

MSCI AC World

14.9

2.6

2.2

Source: MSCI

Current portfolio positioning and activity

Geographic breakdown

Looking at AAIF’s geographic exposure in Exhibits 3 and 4, over the 12 months to the end of October 2023, there were modest changes. There were higher weights in Taiwan (+2.9pp) and China (+1.8pp) with lower allocations to Australia and Singapore (both -1.8pp). Compared with the MSCI AC Asia Pacific ex Japan Index, AAIF was materially underweight China (-20.5pp) with a large above index weighting to Singapore (+17.4pp), which is one of the highest yielding countries in the region. The fund also has underweight positions in India (-8.2pp) and South Korea (-3.4pp) as these are lower-yielding markets.

A large part of the Chinese index weighting is made up of internet companies that do not pay a dividend, while other sectors that do pay dividends, such as banks, are relatively less attractive compared to their regional peers in terms of both quality and yield. The underweight Chinese position has been beneficial for AAIF’s relative performance over the last couple of years as the Chinese stock market has rolled over. However, this positioning was detrimental during prior periods, when there was high demand for Chinese growth shares. The managers are mindful of problems within the Chinese property market as developer excess is being reigned in and they avoid speculative developers or those with high levels of debt, although the managers believe the industry offers select opportunities; AAIF has a holding in China Resources Land, which has a rental revenue-generating investment properties portfolio that is used to fund future developments and pay a sustainable dividend, but is trading below its estimated intrinsic value.

Exhibit 3: Portfolio geographic exposure versus index (% unless stated)

Portfolio end-
October 2023

Portfolio end-
October 2022

Change
(pp)

Active weight vs index (pp)

Singapore

20.6

22.4

(1.8)

17.4

Taiwan

19.4

16.5

2.9

4.9

Australia

16.5

18.3

(1.8)

0.8

China

8.3

6.5

1.8

(20.5)

South Korea

8.0

7.6

0.4

(3.4)

India

7.1

7.3

(0.2)

(8.2)

Hong Kong

6.3

5.4

0.9

1.2

Thailand

5.7

6.7

(1.0)

3.9

New Zealand

4.1

4.6

(0.5)

3.7

Indonesia

1.0

1.5

(0.5)

(0.8)

Japan

1.0

1.9

(0.9)

1.0

Malaysia

0.0

0.0

0.0

(1.4)

Philippines

0.0

0.0

0.0

(0.6)

Cash

2.0

1.3

0.7

2.0

Total

100.0

100.0

Source: AAIF, Edison Investment Research. Note: Numbers subject to rounding.

Exhibit 4: AAIF geographic exposure versus MSCI AC Asia Pacific ex Japan Index at 31 October 2023

Source: AAIF, Edison Investment Research

Sector breakdown

From a sector perspective, AAIF has an above-market exposure, with around a quarter of the fund, invested in technology stocks. At the end of October 2023, its top two holdings, TSMC and Samsung Electronics, together made up 13.5% of the portfolio and are favoured for their strong balance sheets and cash flow, along with dividend growth potential. Other technology positions include businesses in TSMC’s and Samsung’s supply chains and companies that are benefiting from the growth in AI. These Asian companies pay dividends, unlike some similar businesses in other regions.

AAIF’s second- and third-largest sector exposures are financials and real estate, which are widely represented in high-income funds. The portfolio has no exposure to healthcare and energy stocks, which make up around 10% of the MSCI AC Asia Pacific ex Japan Index, as they do not meet the managers’ required quality and income criteria. Healthcare stocks in Asia tend to be nascent businesses, unlike in developed markets.

Top 10 holdings

At the end of October 2023, AAIF’s top 10 holdings made up 38.5% of the portfolio, which was 2pp higher than 36.5% 12 months earlier; nine names were common to both periods. The top 10 is a mixture of higher-yielding stocks; for example, utility and financial companies and dividend growth names such as TSMC and Samsung Electronics.

Exhibit 5: Top 10 holdings (at 31 October 2023)

Company

Country

Sector

Portfolio weight %

31 Oct 2023

31 Oct 2022*

Taiwan Semiconductor Manufacturing Co

Taiwan

Information technology

7.6

5.8

Samsung Electronics (pref shares)

South Korea

Information technology

5.9

5.0

BHP Group

Australia

Materials

4.1

3.8

DBS Group

Singapore

Financials

3.8

4.7

Oversea-Chinese Banking Corporation

Singapore

Financials

3.7

3.7

Power Grid Corporation of India

India

Utilities

3.6

2.6

Rio Tinto

Australia

Materials

2.6

N/A

United Overseas Bank

Singapore

Financials

2.5

2.7

Venture Corporation

Singapore

Information technology

2.4

3.2

Taiwan Mobile

Taiwan

Telecom services

2.3

2.4

Top 10 (% of holdings)

38.5

36.5

Source: AAIF, Edison Investment Research. Note: N/A where not in end-October 2022 top 10.

Recent portfolio transactions

In September 2023, PT AKR Corporindo (AKR) was added to the portfolio due to its attractive valuation and a high single-digit dividend yield. AKR is one of the main players in industrial fuel distribution in Indonesia, a business that has a high barrier to entry. The company benefits from an extensive infrastructure and logistic network throughout the country. There is potential for AKR to accelerate land sales at its Java Integrated Industrial and Ports Estate (JIIPE). With government support for the JIIPE’s development, including tax incentives, AKR is well placed to reap the rewards as a utility provider to the area, which will help to support its dividend payments.

Two positions were sold in August 2023: China Vanke, as the investment thesis had changed due to the property developer’s increasing liquidity stress, and China Merchants Bank, as its management signalled continuing net interest margin pressure amid a weak economic and property environment.

Performance: Outperformance over the medium term

There are five companies in the AIC Asia Pacific Equity Income sector (Exhibit 6). Three invest for income as well as capital growth: AAIF, Henderson Far East Income Trust (HFEL) and Schroder Oriental Income Fund (SOI). These companies have straightforward yields as their dividends are paid out of income. The other two funds, JPMorgan Asia Growth & Income (JAGI) and Invesco Asia Trust (IAT), make distributions that may be paid out of capital.

Unlike managers that take a barbell approach of investing in some businesses with a high yield and others that do not pay a dividend, all of AAIF’s portfolio companies contribute to the fund’s overall dividend yield, although exceptions are made for an IPO or a spin-off company that has committed to a future dividend payment.

Exhibit 6: AIC Asia Pacific Equity Income sector at 7 December 2023*

% unless stated

Market
cap £m

NAV TR
1 year

NAV TR
3 year

NAV TR
5 year

NAV TR
10 year

Discount
(ex-par)

Ongoing
charge

Perf.
fee

Net
gearing

Dividend
yield

abrdn Asian Income Fund

325.6

(2.9)

3.7

27.3

73.5

(13.3)

1.0

No

108

5.4

Henderson Far East Income

332.4

(8.4)

(11.1)

(2.2)

39.3

(5.1)

1.0

No

103

11.9

Invesco Asia Trust

203.2

(4.9)

(1.0)

37.0

143.1

(9.3)

1.0

No

103

4.9

JPMorgan Asia Growth & Income

294.1

(1.5)

(11.6)

19.8

116.3

(9.0)

0.7

No

100

4.8

Schroder Oriental Income Fund

595.5

0.2

7.4

34.4

118.9

(6.0)

0.9

Yes

105

5.0

Simple average (five funds)

350.2

(3.5)

(2.5)

23.3

98.2

(8.5)

0.9

104

6.4

AAIF rank in peer group

3

3

2

3

4

5

3=

1

2

Source: Morningstar, Edison Investment Research. Note: *Performance data to 6 December 2023 based on ex-par NAV. Net gearing is total assets less cash and equivalents as a percentage of net assets.

In terms of NAV total returns versus the peer group, AAIF’s are above average over the last one, three and five years, ranking third, second and third respectively. Over the last decade it ranks fourth. The company’s discount is currently the widest in the group, which may seem unwarranted given its solid recent and mid-term performance and its quality growth and income focus. AAIF has the joint-highest ongoing charge, but no performance fee is payable, and the highest level of gearing, which should be beneficial in a rising market. It has the second-highest dividend yield of the whole sector and of the three companies that pay a dividend based purely on income.

Exhibit 7: Share price and NAV total return performance, relative to indices (%)

 

One month

Three months

Six months

One year

Three years

Five years

10 years

Price relative to MSCI AC Asia Pac ex-Jpn

2.6

(1.3)

(2.4)

(3.3)

14.0

5.4

(18.2)

NAV relative to MSCI AC Asia Pac ex-Jpn

0.5

0.2

(0.7)

(1.7)

16.4

6.2

(7.1)

Price rel to MSCI AC Asia Pac ex-Jpn HDY*

4.0

(1.9)

(3.7)

(8.0)

(5.3)

6.7

(14.9)

NAV rel to MSCI AC Asia Pac ex-Jpn HDY*

1.8

(0.3)

(2.0)

(6.5)

(3.3)

7.5

(3.4)

Price relative to CBOE UK All Companies

2.9

(1.4)

(3.2)

(8.2)

(17.0)

(0.8)

(7.8)

NAV relative to CBOE UK All Companies

0.8

0.1

(1.5)

(6.7)

(15.3)

(0.1)

4.6

Source: Refinitiv, Edison Investment Research. Note: Data to end-November 2023. Geometric calculation. *HDY is high dividend yield.

AAIF’s relative returns are shown in Exhibit 7. It has outperformed the MSCI AC Asia Pacific ex Japan Index over the last three and five years. It is ahead of the MSCI AC Asia Pacific ex Japan High Dividend Yield Index over the last five years in both NAV and share price terms.

The company’s performance has been less successful over the last decade where, for most of the period, investors favoured growth stocks. Also, the portfolio’s underweight Chinese exposure over the last 10 years is likely to have been detrimental, although this positioning has been beneficial in recent years due to China’s strict COVID-19 lockdowns followed by lacklustre economic recovery, along with increased regulatory pressure imposed on some areas of the Chinese economy.

Exhibit 8: Investment company performance to 30 November 2023

Price, NAV and index total return performance, one-year rebased

Price, NAV and index total return performance (%)

Source: Refinitiv, Edison Investment Research. Note: Three-, five- and 10-year performance figures annualised.

Exhibit 9: Five-year discrete performance data

12 months ending

Share price
(%)

NAV
(%)

MSCI AC Asia Pac
ex-Japan (%)

MSCI AC Asia Pac
ex-Japan HDY (%)

CBOE UK All Companies (%)

30/11/19

10.6

6.6

8.3

3.8

11.3

30/11/20

6.8

9.5

18.0

1.1

(11.2)

30/11/21

10.8

14.2

2.8

6.1

17.1

30/11/22

3.2

0.4

(5.8)

4.5

7.9

30/11/23

(6.9)

(5.3)

(3.7)

1.3

1.5

Source: Refinitiv. Note: All % on a total return basis in pounds sterling.

Dividends: FY22 saw a return to a covered dividend

AAIF pays quarterly dividends in May, August, November and February. The FY22 total distribution of 10.00p per share was 5.3% higher year-on-year and was the first covered annual dividend in three years, following the global pandemic. The company has now paid higher dividends for 14 consecutive years. Revenue earnings per share were 10.23p in FY22, a 14.3% increase versus 8.95p per share in FY21. This was helped by the managers’ focus on high-yielding companies with strong fundamentals, where there is scope for higher dividend payments given strong cash flow generation and low distribution ratios in Asia.

The board announced that, barring unforeseen circumstances, the FY23 annual dividend will be at least 10.60p per share, representing a 6.0% increase. So far, three interim dividends of 2.50p per share have been declared, which are 8.7% higher year-on-year.

Exhibit 10: AAIF’s 10-year dividend record

Source: AAIF, Edison Investment Research

Valuation: Discount remains wider than peers’

AAIF’s discount to NAV remains wider than those of its peers, despite the fund’s attractive dividend yield and focus on high-quality companies. Its latest 13.1% share price discount to cum-income NAV is towards the wider end of the 8.4% to 15.1% range over the last 12 months (Exhibit 11). This is not unexpected given heightened investor risk aversion during a period of economic uncertainty. Over the last one, three, five and 10 years, AAIF’s average discounts are 11.9%, 11.5%, 10.7% and 8.0% respectively.

The board’s policy is to repurchase shares when the share price discount to ex-income NAV exceeds 5% (in normal market conditions). In FY22, c 1.7m shares (c 1.0% of the share base) were bought back, at a cost of c £3.8m, and held in treasury. Modest share repurchases have continued in FY23 (Exhibit 12).

Exhibit 11: Discount over three years (%)

Exhibit 12: Buybacks and issuance

Source: Refinitiv, Edison Investment Research

Source: Morningstar, Edison Investment Research

Exhibit 11: Discount over three years (%)

Source: Refinitiv, Edison Investment Research

Exhibit 12: Buybacks and issuance

Source: Morningstar, Edison Investment Research

Fund profile: Above-average income

AAIF is a Jersey-registered, closed-end investment company that launched in December 2005. It is managed by abrdn’s Asian Equity team, which aims to generate an attractive total return from a diversified portfolio of Asia Pacific equities, including those with above-average dividend yields. AAIF invests across the market-cap spectrum and is unconstrained in terms of geographic and sector exposures. Its board follows a progressive dividend policy and the annual dividend has increased in each of the last 14 years. The fund’s performance is measured against the MSCI AC Asia Pacific ex-Japan Index. Relative performance versus the MSCI AC Asia Pacific ex-Japan High Dividend Yield Index is provided for reference. AAIF can invest in preference shares, debt, convertible securities, warrants and equity-related securities, as well as off-benchmark stocks (including Japan). A maximum 20% of total assets is permitted in a single issuer. Gearing of up to 25% of NAV (up to 15% in normal market conditions) is permitted. The managers may write covered put and call options, and undertake stock lending to generate additional revenue, although these features are used sparingly.

Investment process: Focus on quality and value

abrdn’s disciplined investment approach is based on three core beliefs: fundamental research can highlight market inefficiencies; over the long term, company fundamentals drive share prices, but in the shorter term, share prices can be mispriced; and ESG analysis and corporate engagement can enhance returns. Portfolio turnover is relatively low, averaging c 10–15% pa, implying around a seven- to 10-year holding period.

There is a four-step investment process:

Idea generation – there is a broad investible universe of around 1,000 stocks, so quantitative tools are used to refine the opportunity set. Given its size and local presence, abrdn enjoys extensive corporate access.

Research – there is active coverage/review of c 300 stocks, with ESG fully embedded in the process.

Peer review – around 200 stocks are given a ‘buy’ rating, and these and companies rated ‘hold’ may be included in the portfolio. There is a team-based approach that includes rigorous debating of ideas.

Portfolio construction – the fund holds 4070 stocks, selected on a bottom-up basis, which is subject to quantitative and risk analysis.

abrdn has a proprietary research platform used by all its equity, credit and ESG teams. Research is focused on four areas: ‘foundations’ include how a company makes money, its competitive advantage, industry conditions, financial strength and the quality of its management team; ‘dynamics’ covers the shorter- and longer-term dynamics of a business that will drive long-term value, and which may not be reflected in a company’s share price; ‘financials and valuation’ considers the strengths and weaknesses of a company’s financial metrics, how a firm is valued and an analysis of dividend paying ability, along with the potential for dividend sustainability and growth; and ‘investment insight and risk’ is an articulation of the investment thesis, how value is expected to be created and how the view differs from the consensus.

AAIF’s approach to ESG

abrdn has been actively integrating ESG into its investment process for 30 years and believes that ESG factors are financially material and can meaningfully affect a company’s performance. The managers cite evidence that shows shares of better-quality companies can perform better than inferior peers, investing in companies with better ESG scores can add to fund performance, and ESG analysis can help deliver a similar portfolio return while reducing investment risk.

AAIF’s portfolio has an ‘A’ ESG rating by MSCI, which is a leading external ratings agency. Environmental factors relate to how a company conducts itself regarding environmental conservation and sustainability. Social factors pertain to a company’s relationship with its employees and vendors. Governance factors include the corporate decision-making structure, the independence of board members, the treatment of minority shareholders and executive compensation. An ESG focus enables AAIF’s managers to glean additional insights from company visits and obtain an ESG information advantage. These meetings are important as Asian companies’ ESG disclosure can be poor, especially in certain markets such as China.

abrdn’s Asia Pacific equity team has around 40 people, of which three are ESG specialists. The company is an active investor that votes at shareholder meetings, works with companies to drive positive change and engages with policymakers on ESG and stewardship matters. abrdn does not invest in tobacco companies or firms directly exposed to controversial weapons. Following extensive due diligence and research, abrdn’s research analysts assign an ESG score of 1 to 5 to each company under coverage. The company has aligned its approach with that advocated by the investor agenda of the Principles for Responsible Investment, which is a United Nations-supported initiative to promote responsible investment to enhance returns and better manage risk.

Recent company engagements by AAIF’s managers include with Rio Tinto regarding its proposed changes to its remuneration policy, which are scheduled to be tabled at its 2024 AGM. abrdn had questions about several aspects of the proposals, including those related to performance measures, vesting thresholds for the long-term incentive plan and share deferral requirements for the annual bonus.

Gearing

AAIF has a £40m multi-currency revolving facility with Bank of Nova Scotia, London Branch. At end-H123, £30.1m was drawn down as follows: £15.8m at 5.66090%, US$8.85m at 6.36448% and HK$73.5m at 5.94964%. The company also has an unsecured fixed £10m credit facility with Bank of Nova Scotia, London Branch, at an all-in interest rate of 1.53%. Both facilities mature on 2 March 2024. At 8 December 2023, net gearing was 6.2%.

Fees and charges

abrdn receives an annual management fee of 0.8% of AAIF’s rolling monthly average NAV over the previous six months, up to £350m, and 0.6% per year above £350m. Fees are charged 40:60 to the revenue and capital accounts respectively, in line with the expected split of returns between income and capital; no performance fee is payable. In H123, AAIF’s ongoing charges were 1.01%, which were in line with FY22.

Capital structure

AAIF is an investment company with one class of share; there are 167.4m ordinary shares in issue, with a further 27.6m shares held in treasury. Its average daily trading volume over the last 12 months is c 176k shares.

Exhibit 13: Major shareholders

Exhibit 14: Average daily volume

Source: Bloomberg. Note: At 31 October 2023.

Source: Refinitiv. Note: 12 months to 7 December 2023.

Exhibit 13: Major shareholders

Source: Bloomberg. Note: At 31 October 2023.

Exhibit 14: Average daily volume

Source: Refinitiv. Note: 12 months to 7 December 2023.

The board

Exhibit 15: AAIF’s board of directors at end-FY22

Board member

Date of appointment

Remuneration in FY22

Shareholdings at end-FY22

Ian Cadby (chairman since 1 January 2022)

11 May 2016

£42,000

12,000

Krystyna Nowak (senior independent director)

7 May 2015

£30,000

17,797

Mark Florance

10 May 2017

£34,000

12,794

Nicky McCabe

16 May 2018

£29,000

5,121

Robert Kirkby

1 November 2021

£29,000

16,937

Hugh Young (non-independent director)*

11 November 2005

£0

27,500

Source: AAIF. Note: *Stood down at the May 2023 AGM.

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This report has been commissioned by abrdn Asian Income Fund and prepared and issued by Edison, in consideration of a fee payable by abrdn Asian Income Fund. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by abrdn Asian Income Fund and prepared and issued by Edison, in consideration of a fee payable by abrdn Asian Income Fund. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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