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abrdn New Dawn cuts fees

Aberdeen New Dawn - Moving up the league table

abrdn New Dawn Investment Trust has published results covering its financial year ended 30 April 2022. In a difficult period for markets, the trust slightly underperformed its MSCI All Countries Asia Pacific ex Japan benchmark, returning -11.0% in nAV terms and -11.8% in share price terms against -9.2% for the benchmark. An unchanged dividend of 4.3p is payable from earnings of 3.7p and a small transfer from reserves. Revenue reserves are still sufficient to cover the whole dividend twice over.

2.2m shares were bought back with the aim of increasing liquidity when the discount widened.

The chairman’s statement highlights the effects of the Chinese government’s efforts to maintain a zero COVID policy, rising US interest rates, and the war in Ukraine on the trust’s markets.

Fee change

The company has agreed an amended management fee with the manager, introducing a new, lower tier of fee on any net assets above £350m. At that level, the fee will fall from 0.85% p.a. to 0.50% p.a. This change has been backdated to take effect from 1 May 2022.

Extract from the manager’s report

In terms of performance drivers, China was a notable contributor to relative returns. Our selective approach to the internet segment, in the uncertain regulatory environment, reaped some reward. In particular, not holding e-commerce companies Meituan and Pinduoduo benefited the Company, as did the relatively small position in Alibaba. The companies we favour are those that benefit from policy tailwinds. To this end, Yunnan Energy New Material, the global leader in lithium-ion battery separators, and power-automation product specialist NARI Technology both performed well as policymakers continued to call for development of green and renewable technologies. However, another holding in this segment, clean-energy solutions provider Sungrow Power Supply, retreated after announcing a soft full-year result. Despite this, we retain our conviction in the company given Beijing’s ambitious long-term renewable-energy agenda.

The relative gains above more than offset unfavourable moves in other mainland holdings. Tencent, for instance, was affected by the regulatory clampdown on the mainland internet sector. Current operating conditions remain challenging, but the company’s continued dominance of Chinese internet-user engagement, as well as the shifting policy tone towards regulation, platform internet companies and support for the economy, all help to provide confidence in the company’s longer-term growth outlook. The shift in the regulatory landscape also weighed down the holding in Chinese data-centre company GDS. Elsewhere, shares of China Tourism Group Duty Free lost ground due to renewed outbreaks of Covid-19 and the resulting lockdowns.

We remain highly selective in China, having reduced exposure to the mainland over the course of the year. This included selling several holdings we regarded as adversely susceptible to regulatory pressure, including Ping An Insurance, Meituan and JD Health. But at the same time, we also introduced some new holdings, including Zhongsheng, the country’s leading automotive dealer. The company has a strong portfolio of premium cars, a scale advantage and a very cash-generative aftersales business.

Elsewhere in Southeast Asia, several of the Company’s bank holdings contributed positively to performance. Indonesian lender Bank Central Asia and Singapore’s DBS Group and Oversea-Chinese Banking Corporation all delivered gains on the back of the economic recovery sparked by the removal of Covid-related restrictions and rising interest rates. In neighbouring Vietnam, the country’s leading retailer, Mobile World, continues to see healthy growth supported by extension of its store network and the rapid expansion in online sales.

We continue to be positive on the longer-term outlook for domestic consumption in Southeast Asia. To this end, we subscribed to the initial public offer of Indonesia’s Cisarua Mountain Dairy (“Cimory”), a leader in the domestic yoghurt segment. Cimory has a proactive management team, and its understanding of local consumer preferences and modern trade has enabled the company to gain market share quickly in other segments. We also purchased FPT, a diversified technology group in Vietnam with a fast-growing software outsourcing business. On the other side, we divested two of the Company’s Singaporean holdings, Raffles Medical and City Developments, to fund purchases in higher conviction holdings.

Meanwhile, key areas of relative performance weakness were in Australia, India and South Korea. In Australia, the lighter exposure versus the benchmark proved costly as the market was among the strongest in the region as Covid restrictions eased and commodity prices rose. In particular, the Company’s lack of exposure to the large Australian banks was a detractor, but we continue to favour other, higher growth regional lenders. The losses were partially mitigated by the holding in mining giant BHP, which was a key beneficiary of the current high commodity-price environment.

Moving to India, the performance of the Company’s holding in the Aberdeen Standard SICAV – Indian Equity Fund lagged the local market, largely due to the lack of underlying exposure to the energy and metals and mining sectors in India which performed strongly amid the global boom in commodity prices. Meanwhile, the same commodity price inflation eroded margins for some of the portfolio’s holdings in the consumer staples and materials sectors.

Other detractors included South Korea’s Samsung Electronics (“SEC”) and LG Chem. SEC was caught up in the wider technology sell-off at the start of the calendar year, despite recently announcing better than expected numbers in its memory division and another quarter’s double-digit growth in its foundry business. LG Chem underperformed due to General Motors’ model recall, for which it is the sole battery supplier. This was compounded by the subsequent demerger of the battery business and concern over rising input costs.

ABD : abrdn New Dawn cuts fees

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