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Shake up for Aberdeen Standard Asia Focus

Hugh Young to be named manager of Aberdeen Asian Smaller

Shake up for Aberdeen Standard Asia Focus – prompted we think by a persistent discount, Aberdeen Standard Asia Focus’s board has been carrying out a comprehensive review of the company’s long-term strategy and has also addressed how to make it more competitive and attractive to investors, in particular, retail investors.

The board is proposing the following changes:

  • Amend the investment policy to allow more flexibility to invest in growing small companies across Asia;
  • Strengthen the management team by adding Flavia Cheong, abrdn’s Head of Equities, Asia Pacific, as joint lead manager with Hugh Young. The investment management team will be bolstered to reflect the increasing importance of China;
  • Increase the target annual dividend by 100% to 32p for the financial year ending 31 July 2022 (payable quarterly) and thereafter maintain the progressive dividend policy of the last 25 years. Part of the payment will be made from reserves – there’s no plan to switch to investing in higher yielding stocks;
  • Reduce the running costs – abrdn have agreed to an amended, tiered management fee, still payable on market capitalisation. The amended fee will be 0.85% on the first £250m, 0.6% on the next £500m and 0.5% on amounts exceeding £750m. It is currently set at 0.96% of market capitalisation;
  • A five for one share split, with the aim of increasing the marketability of the ordinary shares for small investors (the conversion price of the 2.25% convertible unsecured loan stock 2025 will be automatically adjusted should shareholders approve the share split); and
  • A performance-linked tender offer, triggered in the event of underperformance of the NAV versus the MSCI AC Asia ex Japan Small Cap Index over a five-year period commencing 1 August 2021.

Changes to investment policy

The board thinks that there is a potential problem in that the definition of a small cap company varies from market to market with China and India at one end of the scale and very small markets, like Sri Lanka, at the opposite end.

The current investment objective and policy limits investment into companies that have a market capitalisation of up to approximately $1.5bn, which the board thinks is constricting access to high growth companies particularly in larger markets like China and India.

The board is proposing, if shareholders agree, to remove the market capitalisation limit from the investment policy while stressing that this will remain as a small company portfolio. [We think it would be more straightforward if the limit was raised, but this won’t become an issue unless the portfolio ends up dominated by a few largish-cap companies.]

The board is dropping Australasia from the remit saying it “does not believe the outlook for this region will offer the same growth prospects as other parts of Asia“. Three existing holdings in Australasia will be retained for now.

Team changes

Flavia Cheong, abrdn’s head of equities, Asia Pacific, will be joint lead manager alongside Hugh Young and Gabriel Sacks. Neil Sun will also join the team directly responsible for managing the potential increased weighting in North Asia.

abrdn is adding two more investment professionals to its eight-strong team in Shanghai and Hong Kong, focusing on researching Chinese equities.

AAS : Shake up for Aberdeen Standard Asia Focus

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