Aberdeen Offers 10% Yield in Asia-Pacific

10/18/2018 5:00 am EST

Focus: GLOBAL

Ian Wyatt

Publisher & Chief Investment Strategist, Wyatt Investment Research

For our latest recommendation, we travel in search of a quality fixed-income investment that provides reliable high-yield income; this has led us to the Aberdeen Asia-Pacific Income Fund (FAX), suggests Ian Wyatt, editor of High Yield Wealth.

The Aberdeen Asia-Pacific Income Fund is a high yield closed-end fund (CEF). Its distribution — paid monthly — yields 10.1%. The fund holds $1.75 billion in assets under management (AUM).

The assets are composed of corporate and government debt issued by countries and corporations in Asia and Australia. The split is nearly equal between the two: Forty-five percent of the investment portfolio is composed of corporate bonds; 47% is composed of government bonds. 

Quality is a guiding light. Nearly 66% of the Aberdeen Asia-Pacific Income Fund bonds are rated investment grade. Nearly 27% are triple-A rated — the best you can get. 

Risk is reduced further by geographic diversification. Australia is the anchor country, accounting for 34% of geographic exposure. Another 37% is allocated among China, India, and Indonesia — three of the higher-developed, faster-growing economies in the region. 

Additional risk-reducing diversification is achieved with the currencies. Exposure to the Australian dollar is 28% of the portfolio value. Forty-one percent of the bonds consists of sovereign debt denominated in U.S. dollars. The remaining 31% is composed of bonds denominated in 14 separate currencies.

Consistency is the name of the game. The Aberdeen Asia-Pacific Income Fund has adroitly managed its bond portfolio to deliver a $0.035 distribution per share every month for the past 16 years. Over that period the share price has been as low as $3, hit at the depths of the 2008 financial crisis. The shares traded as high as $8 in late 2012 when interest rates were hovering near historical lows. 

The market price flutters at the low end of the historical range. Why is this? Rising interest rates are a concern for many fixed-income investors. Falling bond prices are the corollary to rising interest rates. 

Aberdeen Asia-Pacific Income trades near a 10-year low. The low price has lifted the distribution yield to above 10%. Many investors view a low price as a warning to stay away. We see it otherwise. We see the Aberdeen Asia-Pacific Income Fund’s low share price as a reason to buy. 

This as an opportunity to add a proven high-yield investment at a favorable price. Indeed, a very favorable price. The Aberdeen Asia-Pacific Income Fund hasn’t offered this high yield at this low a price in nearly 10 years. Buy up to $4.50.

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