The Aberdeen Asia-Pacific Income Fund (FAX) is a close-ended, fixed-income mutual fund launched and managed by Aberdeen Standard Investments (Asia) Limited in Singapore. The fund was launched in 1986 and I have long admired Aberdeen as a high-quality asset manager, writes Carl Delfeld, editor of Cabot Explorer.
Since the 1990s, many growth companies have seemed to think that they are better off allocating their capital by reinvesting it in their businesses rather than returning it to shareholders. In addition, significant capital appreciation and stock buybacks in the last decade led many to ignore dividends and income.
But the tide is turning as Baby Boomers look to dividends and interest income as a form of economic security to fund their retirement as well as to take advantage of the power of compounding. There are other reasons to take dividend and interest income into consideration when picking stocks or bonds, too. Companies that consistently grow their dividends have historically exhibited strong fundamentals, solid business plans, and a deep commitment to their shareholders.
Aberdeen Asia-Pacific Income Fund (FAX)
And though retail investors have shunned equity income funds, institutional investors have embraced them to fill in and broaden their product lines. This brings me to FAX.
This fund invests in fixed income (bond) markets in Asia, Australia, and New Zealand. About 50% of this fund’s investments are denominated in US dollars and the same proportion is allocated to Asia-Pacific government bonds issued by countries such as India, Indonesia, and China, as well as smaller amounts by Malaysia and the Philippines.
Yields and income are higher than in the United States, but their economies are stronger than they have been in the past. The other 50% allocation is to companies, with the lead sector being, as you would expect, finance.
The fund was recently trading at about a 10% discount to its net asset value. Its share price is substantially off its high and in an uptrend as well. This gives us both the potential for capital appreciation and a nice current 12% income stream that can be reinvested in whatever you please.
Recommended Action: Buy FAX.
