abrdn Closed-End Funds
FOR US INVESTORS ONLY
Important Information:
Closed-end funds are traded on the secondary market through one of the stock exchanges. The Fund’s investment return and principal value will fluctuate so that an investor’s shares may be worth more or less than the original cost. Shares of closed-end funds may trade above (a premium) or below (a discount) the net asset value (NAV) of the fund’s portfolio. There is no assurance that the Fund will achieve its investment objective. Past performance does not guarantee future results.International investing entails special risk considerations, including currency fluctuations, lower liquidity, economic and political risks, and differences in accounting methods; these risks are generally heightened for emerging market investments.Concentrating investments in the specific regions subjects the Fund to more volatility and greater risk of loss than geographically diverse funds.Fixed income securities are subject to certain risks including, but not limited to: interest rate (changes in interest rates may cause a decline in the market value of an investment), credit (changes in the financial condition of the issuer, borrower, counterparty, or underlying collateral), prepayment (debt issuers may repay or refinance their loans or obligations earlier than anticipated), and extension (principal repayments may not occur as quickly as anticipated, causing the expected maturity of a security to increase).The Fund’s use of leverage exposes the Fund to additional risks, including the risk that the costs of leverage could exceed the income earned by the Fund on the proceeds of such leverage. Additionally, in the event of a general market decline in the value of the Fund’s assets, the effect of that decline will be magnified in the Fund because of the additional assets purchased with the proceeds of the leverage.Your portfolio may not have the same asset class weightings. Asset class weightings are subject to change.Diversification does not ensure a profit or protect against a loss in a declining market.Some of the information in this document may contain projections or other forward looking statements regarding future events or future financial performance of countries, markets or companies. These statements are only predictions and actual events or results may differ materially. The reader must make his/her own assessment of the relevance, accuracy and adequacy of the information contained in this document, and make such independent investigations, as he/she may consider necessary or appropriate for the purpose of such assessment.Any opinion or estimate contained in this recording is made on a general basis and is not to be relied on by the reader as advice. Neither ABRDNnor any of its agents have given any consideration to nor have they made any investigation of the investment objectives, financial situation or particular need of the reader, any specific person or for any loss arising whether directly or indirectly as a result of the reader, any person or group of persons acting on any information, opinion or estimate contained in this document.
abrdn Closed-End Funds
abrdn Asia-Pacific Income Fund, Inc. (FAX) - March 2024 Update
In this episode, Adam McCabe joins Mike Taggart to discuss FAX.
00:00:00:00 - 00:00:26:20
Mike Taggart
Welcome to the latest podcast for the Aberdeen Asia-Pacific Income Fund, the ticker symbol FAX. I'm Mike Taggart, Aberdeen's US closed end funds specialist today joining us from Singapore. We have Adam McCabe, Aberdeen's head of Asian fixed income and the portfolio manager for facts. Adam, thank you for taking the time to speak with us today.
Adam McCabe
Thanks, Mike. It's great to be here.
00:00:26:22 - 00:00:51:18
Mike
Adam, Let's begin with the general outlook for Asian bond markets and why U.S. investors should consider allocating capital to the region's fixed income markets.
Adam
Well, I think there's a couple of things to keep in mind with respect to fixed income markets generally. I think the first thing is that the Fed is looking to pivot towards an easing in policy rates that will come at some stage.
00:00:51:24 - 00:01:15:18
Adam
We expect during the course of 2024, that's really important for Asia because inflation in Asia is is under control and it hasn't been as much of a problem as it has been in the US. We expect as soon as the Fed shows its hand, Asian policymakers will follow through as well. In terms of easing, that's great for the fixed income markets in the region.
00:01:15:20 - 00:01:58:21
Adam
We believe that the Asian fixed income markets bring diversity. They bring income and the fundamentals of far more robust in many parts of the developed world and that's quite, quite often overlooked by investors in the US.
Mike
In what way are the fundamentals better?
Adam
Well, I think the first thing to note, and unlike in the US, where I suspect the fiscal cliff will be talked about many times over in the next few years, fiscal policy, credibility and an agenda of policy credibility across both fiscal and monetary policy has been well-established in Asia.
00:01:58:23 - 00:02:35:17
Adam
The Asian policymakers learned a very tough lesson in the Asian financial crisis in 1997, and as a result, we now see policymaking that is far more focused on on being prudent and being responsible, and that allows for fixed income investors in particular, to gain comfort in relative stability.
Mike
You know, you may have just touched on this, but one thing I wanted to kind of bring up, because I think it's interesting is that often, you know, in the U.S., I think there's a tendency to think of Asian markets as high yield markets.
00:02:35:19 - 00:03:00:04
Mike
And yet when I look at FAX’s latest fact sheet, more than three quarters of the portfolio has a credit quality of triple B or higher. You know, it's investment grade. And, you know, I was hoping you could explain that and you may have just touched on that a bit.
Adam
Yes, definitely. I think in the past, investors outside of Asia would have seen Australia as a high quality market.
00:03:00:04 - 00:03:43:22
Adam
And then everything outside of Australia in the Asia-Pac region has being risky. But as I said, policymakers here have demonstrated that they lost face in 1997, 98, and as a result of that loss of face, they've now become so much more focused on delivering prudential, fiscal and monetary policy. I'll take an example of the Indonesian market. The listeners may remember that the IMF chairman during the Asian financial crisis was standing over the president of of Indonesia when he was signing that loan from the IMF, the agreement to the loan from the IMF.
00:03:43:24 - 00:04:13:09
Adam
The Indonesians lost a lot of face during that period and as a result, what we've seen is the Indonesian government now has a fiscal policy that has limits on it. It can't exceed a number of 2 to 3% of GDP in terms of fiscal deficits that that that credibility that's been demonstrated over the course of the past 20, 25 years reinforce is what I, in my view, is an opportunity for fundamental improvement.
00:04:13:11 - 00:04:43:06
Adam
And if the yields are higher than they are in the US, that's an opportunity for investors to get that income and benefit from better fundamentals. Those better fundamentals mean that that income that you can generate in your portfolio comes with a lot less volatility.
Mike
It's interesting, and I'll note that, you know, the latest fact sheet from the end of January, Indonesia comprised 16% of that portfolio.
00:04:43:08 - 00:05:06:01
Mike
You know, you being in Singapore and kind of right in the heart of of the of the region. Could you tell us a little bit about the structure of of your team and your investment process and kind of just how you look at your investable universe for FAX?
Adam
And so the investment universe is quite diverse, and that's that's one of its appeal.
00:05:06:03 - 00:05:43:12
Adam
First and foremost, the Asia Pacific fixed income markets bring appeal. VS are they or relative to the developed market, fixed income markets relative to the US fixed income market. But within Asia, there's also a lot of diversity being a high quality, low yielding markets. The Australian market, which is a triple-A rated market. But also we have exposure and as part of our unit universe, the India market, which is a triple B rated market, that diversity in and of itself brings an opportunity for investors.
00:05:43:14 - 00:06:13:03
Adam
With respect to my team and the team, that helps to manage FAX or the Asia, Asia Pacific Income Fund, we have both macro or macro specialists that which focus on the economic analysis, the interest rate and currency analysis. And we have credit specialists as well. At the end of the day, our investment process is focused on fundamental research, security selection that's tailored to the overall environment.
00:06:13:05 - 00:06:35:03
Mike
And then, you know, in terms of country risk and weightings and duration, I mean, how do you put that all together?
Adam
Yeah, in terms of in terms of the way we construct the portfolio, we look at our views relative to consensus, to the market consensus, and where we have the strongest years relative to those consensus, we'll express a view.
00:06:35:05 - 00:07:10:00
Adam
And so when you reference our Indonesian exposure, when you look at our portfolio positioning, also identifying a large weight to India, what that represents is that our team, based on our fundamental research, has a non consensus view and we are prepared to to demonstrate that through large, at least in this case, overweight positions. And of course those positions actually help to augment the income that's generated by the portfolio.
00:07:10:02 - 00:07:29:08
Mike
So that's that. That's great. Adam, you just touched on my last two questions. So at the end of January, FAX had about a fifth of its portfolio invested in India. What's going on in India in terms of its fixed income markets?
Adam
Mike, I could talk to you for an hour about India and how is a great opportunity for fixed income investors.
00:07:29:10 - 00:08:00:21
Adam
First and foremost, I would highlight the reform that's taken place in the last ten years. Narendra Modi was elected as the prime minister almost ten years ago and he brought in a suite of reforms that dealt with corruption, that broke down administrative obstacles, but really focused on creating a business environment that was positive for investors and positive for investment in the country.
00:08:00:23 - 00:08:30:21
Adam
From a fixed income investors perspective, that's really important because what has happened is that the Indian economy is now expanding its productive capacity so it can grow at 7% and not face bottlenecks. It not face inflation as it has in the past. That's brilliant, because that expansion of of productive capacity means that the economy can grow. Inflation is not a problem.
00:08:30:23 - 00:08:54:21
Mike
And then when I when I backtrack and say, well, have a look at the the credibility of the policymaking, there was reforms from the Reserve Bank of India at the central bank. They are now on inflation target. So if you are expanding your economy productively, you can grow, you don't have inflation. And when inflation is structurally lower, guess what the central bank can do?
00:08:54:23 - 00:09:30:20
Adam
They can ease monetary policy. So interest rates anchored by the policy rate can be structurally lower than they were in the past. Sweet spot for the fixed income investors.
Mike
Excellent. So finally, the investment objective for FAX is to seek current income. How does that affect your security selection?
Adam
It's actually pretty easy at the moment because as I reference the Indonesian and Indian structural story, those markets still yields six plus percent.
00:09:30:22 - 00:10:01:15
Adam
And so we're able to take advantage of these of these fundamental opportunities that yield a very attractive income where we are supported by the fundamentals, which means that when it comes to risk adjusted outcomes in terms of income delivery, we're very confident in our ability to do so. Equally importantly, the fund does use leverage to augment the income generation.
00:10:01:17 - 00:10:26:11
Adam
It's important to note that we have been very proactive in the management of leverage over the past five and ten years for investors sort of looking through the annual reports, you'll see that we have locked in now the cost of funds at very low levels. And in fact, the income that we generate on the portfolio relative to the cost of funds is quite low.
00:10:26:13 - 00:10:50:23
Adam
And that's important to highlight because a lot of people are looking at the very high short term rates and asking questions about how can you afford to deploy leverage. Our proactive management of leverage means that we have protected our portfolio from that increase in costs in recent times and we could continue to earn a very positive carry.
Mike
Yeah, Excellent.
00:10:51:00 - 00:11:16:16
Mike
Excellent point. Adam, thank you very much for that update on facts. It's always a pleasure speaking with you.
Adam
Thanks a lot.
Mike
And thank you, everyone for listening to this podcast. There are three convenient ways to learn more about facts on the Internet. Visit A, B, r, D, n, F A X dot com. Email us at Investor.Relations@abrnd.com
00:11:16:20 - 00:11:45:01
Mike
Or give us a call at 1 800 522-5465. I'm Mike Taggart of Aberdeen. Thank you for listening.
00:11:45:03 - 00:12:12:04
Unknown
This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for informational purposes only and should not be considered as an offer, investment recommendation or solicitation to deal in any of the investments or products mentioned herein and does not constitute investment research. The views in this podcast are those of the contributors at the time of publication and do not necessarily reflect those of Aberdeen.
00:12:12:06 - 00:12:38:22
Unknown
The companies discussed on this podcast have been selected for illustrative purposes only or to demonstrate our investment management style and not as an investment recommendation or indication of their future performance. The value of investments and the income from them can go down as well as up, and investors make it back less than the amount invested. Past performance is not a guide to future returns, return projections or estimates, and provide no guarantee of future results.