Aberdeen: Diversified Income from Asia-Pacific

05/26/2015 10:00 am EST

Focus: GLOBAL

David Dittman

Chief Investment Strategist, Australian Edge, Canadian Edge, & Utility Forecaster

The size of the Asian local currency market has grown from $1.5 trillion a decade ago to more than $8 trillion now; nonetheless, few funds let individuals invest in bonds issued in the Asia-Pacific region, suggests David Dittman, editor of newly-launched Pacific Wealth newsletter.

Enter Conservative holding Aberdeen Asia-Pacific Income Fund (FAX), the only vehicle of its kind that lets US-based investors tap into developing Asia’s debt markets, as well as Australia’s.

This closed-end fund is tightly tied to the Australian dollar and Asia-Pacific growth and it’s been a tough road on both of those counts. But at its current level, the fund offers both good value and an impressive 7.7% yield.

The fund gives you exposure to bonds from Australian, Chinese, South Korean, and Singaporean governments and corporations, as well as fixed-income securities from countries such as Indonesia, India, Thailand, the Philippines, and Malaysia.

Aberdeen Asia-Pacific Income’s foreign currency exposure makes it a compelling option for income investors looking for some protection from an eventual downturn in the US dollar.

Meanwhile, longer-term factors point to plenty of upside from here. For one, Asia’s fundamentals remain robust, with rising incomes and a growing middle class.

In addition, continued economic reforms reinforce the appeal of Asian fixed income for diversification within a global portfolio.

China is the region’s wildcard, as it is shifting away from an export-led growth model to one built around domestic demand. As a result, China’s growth is slowing and will continue to moderate as this transition continues.

But the upside is that it’s helping create bargains for investors and it will pay off with longer-term stability.

The appeal of Asian fixed income—such as robust fundamentals, economic reforms, and geographic diversification—is backed up by diversity within the region itself.

That’s a key takeaway: By focusing on just one, two, or a handful of Asian countries, you’re robbing yourself of the benefits of that diversity.

Luckily for investors, this is where the Aberdeen Asia-Pacific Income Fund shines. Aberdeen Asia-Pacific Income Fund is a relatively safe way to establish broad regional diversification.

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