Aberdeen Asian Income held up pretty well in 2020 – Aberdeen Asian Income has published results for the year ended 31 December 2020. The company generated an NAV return of 12.9% – behind the 19.0% return generated by the MSCI AC Asia Pacific ex Japan Index but well ahead of the equivalent high yield index which generated a loss of -1.4% (all total returns and in sterling). The return to shareholders was 12.1%. The dividend was upped from 9.25p to 9.3p, despite a fall in revenue per share to 7.41p.
The chairman’s report says that the manager took advantage of the market turmoil. The manager says that fear of regulatory intervention and possible dividend cuts on one hand, coupled with hopes for outsized returns from high growth stocks on the other, kept yield stocks at bay for a large part of the year. This created an opportunity to buy more of the companies it likes at cheaper valuations.
The big Chinese technology stocks dominate the MSCI AC Asia Pacific ex Japan Index but do not pay much income. This is why the fund has also started to report the performance of the high yield index, which better reflects what it is trying to achieve.
Winners and losers
“The rapid spread of Covid-19 and the ensuing mobility restrictions to help mitigate further contagion forced large swathes of the global population to work and study from home. This swift and mandatory change in behaviour resulted in increased demand for laptops, PCs, smartphones and other related devices as well as online content, e-commerce and cloud-based services. Asia is a powerhouse in the global technology supply chain and seven out of the top ten best performing stocks in the portfolio were major technology players in their respective segments, which capitalised on the above trends, supported by economies of scale that enabled them to ride out the worst of each business cycle.
Aside from the large cap giants, the Company also benefited from mid cap companies that have carved out a competitive edge in specialist markets. For example, Taiwan’s GlobalWafers is a key raw material supplier into both TSMC and Samsung Electronics, generating resilient cash flows in the premium end of the wafer supply market. GlobalWafer’s share price doubled from March lows as the company continues to see healthy demand and has bid to acquire German rival Siltronic which would further consolidate this industry. Elsewhere, Singapore-listed Venture Corporation added Covid-19 diagnostics and testing equipment to their diversified list of end markets, from genome sequencing to 5G infrastructure. Both companies have displayed the resilience of their business models and cash flow generation, and have increased dividends for the year.
On the other hand, some of the more traditional yield stocks fell out of favour during a year where markets leaned heavily into growth and momentum. Our holdings in telecoms and banks lagged the broader Asian market, especially during the first half of the year on fears of substantial dividend cuts. Towards year end, as regulatory pressure for dividend cuts eased and valuation multiples looked increasingly cheap, these stocks have begun to draw interest and share prices have recovered from prior lows.”
“Last year, we were able to add to our China positioning during the market disruption as companies we had been watching from the sidelines became available at relatively cheaper prices. Initiations included Shenzhen-listed Midea, a white goods’ manufacturer that plays into the aspirational consumer theme, as well as Hong Kong Exchanges & Clearing which should benefit from increasing trading volumes, especially if Chinese firms currently listed in the US decide to list closer to home amid heightened geopolitical tensions.”
AAIF : Aberdeen Asian Income held up pretty well in 2020