FAX: A Discount Down Under

08/19/2013 11:00 am EST


Richard Lehmann

Publisher, Forbes/Lehmann Income Securities Investor

This fund, which invests in Australian and Asian debt securities, is our latest featured international recommendation, points out Richard Lehmann, income expert and editor of Forbes/ISA Closed End Fund & ETF Report.

In one sense, regarding closed-end funds, the regression to the mean effect means that buying after a dip is likely to result in the fund returning to a more typical price and earning capital gains along the way.

In another sense, regression to the mean can also refer to the premium/discount balance. When a fund drops to a discount after it had been trading at a premium for more than a year, a bounce back to the average is another example of regression to the mean.

We are always on the alert for such situations. and we think we found a good candidate with Aberdeen Asia-Pacific Income Fund (FAX).

Aberdeen Asia-Pacific Income Fund is currently trading at $6.07 and yields 6.92%. The fund's investment objective is to seek current income and incidental capital appreciation.

The fund 's net asset value is $6.87, giving the fund a discount of -11.64%. It ranks number three in having the highest variance in the closed-end fund sector.

In April of this year, the fund had been trading at a premium of 0.78% and its 52-week average was a discount of -0.45%.

Over 80% of its assets are in investment grade securities, and 55% of assets are invested in government or state securities.

Its largest concentration is in Australia at 38.7%, followed by South Korea at 8.9%, the rest of its assets are scattered across Asia. Its largest holding is the Treasury Corp. of Victoria, 5.75% of 2016.

The fund is leveraged at 23% and pays a monthly dividend. The average maturity of its holdings is seven years.

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