Aberdeen New Dawn has announced its annual results for the year ended 30 April 2016. During the year, the trust’s NAV fell by 15.4% to 179.4p per share (2015 saw an increase of 17.1%) while the share price fell by 15.1% to 156.0p (2015 saw a rise of 14.3%), all in total return terms. The share price discount to NAV (excluding current year income) narrowed slightly during the year to 11.5% but has widened to 13.8% since the year end. During the year the trust’s benchmark, the MSCI All Countries Asia Pacific ex Japan Index, fell by 12.2% in total return terms. However, the trust’s board says that its performance in the three months to 30 April 2016 was more encouraging with a NAV total return of 11.2% compared to a return of 7.0% for the index. The Board has announced a final dividend of 2.9p per share (2015: 2.8p) making a total dividend of 3.9p (2015: 3.8p) an increase of 2.6% on last year.
The Board has agreed with the Manager that, with effect from 1 July 2016, the management fee will be calculated at 0.85% p.a. of net assets. Previously themanagement fee was calculated at 1.0% p.a. of net assets.
In terms of performance attribution, the managers say that the collapse in commodity prices during the year had a negative impact on performance with the corresponding decline in share prices of the portfolio’s resource-sector holdings, such as PetroChina, BHP Billiton and Thailand’s PTTEP. They say that Keppel Corp, a Singapore-based oil-rig manufacturer, was also negatively affected and that BHP Billiton’s share price also suffered from the uncertainty associated with the disaster at its Samarco joint venture with Vale in Brazil. The managers say that commodity weakness also had a negative impact on those banks with significant exposure to the sector, such as HSBC and Standard Chartered, which suffered from higher provisions for non-performing loans. The managers say that they has been actively engaging with the management of both these banks and is encouraged by their efforts to strengthen their capital bases and reduce exposure to riskier assets. The managers say that, at current prices, there is significant upside to the franchise value of both lenders given that their management teams are focused on delivering long-term growth.
The managers say that the portfolio benefited from its low exposure to China which was the worst-performing market over the reporting period. Specifically, the managers highlight that the portfolio had a zero holding in the Chinese insurance and banking stocks which fell sharply over the year. Elsewhere, the managers say that the portfolio’s large position in India had a positive impact on performance. They say that, whilst the stock market was not immune to external events, the declines were pared by the positively received budget announcement in late February, which promised assistance for beleaguered farmers and a 20% boost to infrastructure spending.
The managers say that Samsung Electronics was one of the best performing stocks during the year, as its share price rose following the announcement of a share buyback, the first in a decade. The consumer electronics giant also pledged to return 30-50% of its free cash flow to shareholders over the next three years.
In terms of portfolio activity, the managers also say that increased market volatility offered them opportunities to invest in what they saw as good quality companies at more attractive valuations. As a result, several new holdings were added to the portfolio. These included Anhui Conch, one of the largest cement producers in China (the manager say it has a low-cost structure and robust balance sheet); Hong Kong Exchanges and Clearing, which operates the city’s stock exchange; and MTR Corp, Hong Kong’s rail operator (the managers say that this enjoys strong operating cash flow and a unique rail-and-property mix that means it is one of the largest land owners in the city).
In addition, the portfolio acquired a holding in Astra International, a conglomerate with exposure to a broad range of businesses including automobiles, commodities, financial services and infrastructure that acts as a proxy for the Indonesian economy. Bank Central Asia, one of the country’s largest private banks, was also acquired. The managers comment that, while there may be short term headwinds for Indonesia’s domestic economy, this bank has an impressive track record, in their view, as well as conservative management and a well-capitalised balance sheet. An initial holding in Vietnam was also purchased. Vietnam Dairy Products is a market leader in the dairy sector in Vietnam with, what the managers describe as, “attractive growth prospects in this frontier market”.
The managers report that the portfolio also acquired two new holdings in South Korea. AmorePacific Corp is a cosmetics manufacturer with a strong, diversified brand portfolio, which has been successful in growing market share in China. Naver Corp operates the dominant internet search business in South Korea. The managers say that, in contrast to many of its peers, the company is cash generative and has a strong balance sheet, which has enabled further investment in its other related businesses. These include its mobile messaging subsidiary, LINE, which is already a major player in markets such as Japan, Thailand, Taiwan and Indonesia.
The managers say that, in order to fund these purchases, the portfolio reduced its exposure to a number of holdings that had performed well, such as Ayala Land, China Mobile, OCBC and Samsung Electronics. Two retail-related stocks were also sold: Li & Fung in Hong Kong and Woolworths in Australia. The managers say that both companies suffered from structural changes to the markets in which they operate. Reductions were also made to the portfolio’s commodity exposure via the complete sale of PTTEP and South32, and part sale of BHP Billiton, which the managers say took advantage of the recent rebound in commodity prices.
In terms of outlook, the managers say that, against a backdrop of lackluster macroeconomic growth, markets are expected to remain volatile. The recent result of the UK’s referendum on its European Union membership and upcoming political events, such as the US elections, could also result in greater uncertainty. Meanwhile, a larger than expected rise in US interest rates could also undermine growth prospects for the global economy in their view. The outlook is further clouded by the divergence in monetary policy, with central banks in Europe and Japan expected to keep rates low or negative for longer. While these headwinds may persist, the managers say that they believe the longer term prospects for Asia remain positive. At the corporate level, the managers say that earnings growth may continue to be subdued but balance sheets and cash flow generation remain strong. In addition, the managers say that the trust’s underlying holdings are characterised by established franchises and high standards of corporate governance and transparency. In their view, valuations remain attractive from both a historical perspective and relative to developed markets.
Aberdeen New Dawn’s performance hurt by commodity price collapse :ABD