ABERDEEN ASIAN INCOME FUND offers investors a comfort blanket in these stormy times

No investment fund can completely immunise investors from a correction in stock markets, but there are some which provide a comfort blanket in the form of regular dividends.

Such funds are badged as ‘equity income’ and deliver returns comprising a mix of income and (hopefully) capital gain. Most are either set up to invest across global stock markets or concentrate on dividend-friendly UK companies.

Yet Far Eastern equity income funds are becoming increasingly popular, in response to the willingness of the region’s leading companies to pay shareholders a decent dividend.

Among them is London-listed Aberdeen Asian Income. Over the past five years, more than half of the return (57 per cent) that it has generated for investors has come from dividends. It has also increased annual income payments to shareholders for 16 years on the trot.

The fund, valued at £360 million, paid shareholders dividends worth 14.43p in the last financial year ending December 31, 2024. This year it is on course to beat this figure. With one quarterly payment yet to be declared, it has already distributed 11.78p of income.

To put these payments into perspective, the trust’s share price is £2.56 and the annual dividend yield is an attractive 5.8 per cent.

‘Income provides shareholders with a more stable investment journey,’ says Isaac Thong who runs the fund from Aberdeen’s offices in Singapore. ‘It’s a counter to market volatility and investment risk.’

Like many investment experts, Thong is concerned that global stock markets could fall sharply if the share price bubble in the United States – built around a concentrated number of companies leading the charge on artificial intelligence (AI) – was to burst.

Yet he believes the fund’s portfolio, built around 54 stocks, is capable of withstanding the worst.

‘Yes, we hold companies involved in AI,’ he says, ‘but they are the pick and shovels necessary for complex AI models to function.’

He says these companies – the likes of Accton, ASE and Quanta Computer in Taiwan and Samsung Electronics in South Korea – currently trade at earnings multiples much lower than those for AI businesses in the US, such as Broadcom and Nvidia. In other words, their share prices are not as inflated, so would not fall as sharply if the bursting of the AI investment bubble caused global markets to correct.

For companies to get into the Aberdeen fund, they must be paying shareholders a dividend. If at any time in the future they skipped a payment, Thong would disinvest unless it was the result of an unavoidable event – such as an enforced lockdown in response to the return of an aggressive strain of Covid.

‘The common portfolio thread is that all holdings are high-quality businesses run by great management,’ he says.

‘They create lots of cash, a big chunk of which is passed on to shareholders.’

Thong took over at the fund’s helm in June. Since then he’s changed the portfolio’s geographic shape, increasing exposure to Chinese and Indian companies while reducing positions in Singapore and Taiwan. 

He also increased the range of companies held to include those with extremely low or high annual dividend yields.

The result is exposure to the likes of Chinese tech giant Tencent (with a yield below 1 per cent) and Bank Mandiri, listed in Indonesia with a yield just below 10 per cent.

The fund’s market ticker is AAIF and identification code is B0P6J83. Annual charges total 0.85 per cent.