£500m Abrdn Asia Focus fund rings the changes

Flavia Cheong

The board of the £580 million Aberdeen Standard Asia Focus plc fund announced that it has conducted a “comprehensive review” of the company’s long-term strategy to “ensure that the investment policy captures the immense opportunities that exist in the Asian small cap market.”

The investment trust said this applies “to both South Asia but also North Asia with the emergence of China as the world’s second largest economy and fast expanding stock markets to match.”

As part of the review, the fund also addressed the issue of “how to make the company more competitive whilst giving shareholders, and in particular, retail investors a more meaningful participation in the company’s ongoing success.”

The board believes its proposed measures will help the marketability of the company’s shares and increase the potential to narrow the fund’s discount to net asset value.   

The measures include amending the fund’s investment policy to allow more flexibility to invest in “growing small companies” with market values over $1.5 billion across Asia, strengthening the management team by adding Flavia Cheong, Abrdn’s Head of Equities, Asia Pacific, as joint lead manager with Hugh Young — and bolstering the investment management team to reflect the increasing importance of China.

The measures also include increasing the target dividend by 100% to 32p per ordinary share for the financial year ending July 31, 2022, and reducing the running costs of the company.

Abrdn has agreed to an amended, tiered management fee, still payable on market capitalisation.

“The amended fee will be 0.85% per annum for the first £250m, 0.6% per annum for the next £500m and 0.5% per annum for market capitalisation of £750m and above,” said the fund.

“It is currently set at 0.96% of market capitalisation.”

The trust also plans to increase the marketability of its ordinary shares for small investors by introducing a five for one ordinary share split — and also introduce a performance-linked tender offer “which would be triggered in the event of underperformance of the NAV per ordinary share versus the MSCI AC Asia ex Japan Small Cap Index over a five-year period commencing 1 August 2021.”

Aberdeen Standard Asia Focus chairman Nigel Cayzer said: “This company has achieved an outstanding result for shareholders delivering some of the best returns available from funds quoted on the London Stock Exchange with £1,000 invested in 1995 now worth approximately £22,500.  

“This is in large part thanks to the work of Hugh Young, and his team in Singapore.  

“I am confident that the board instigated review will best position the company to continue the strong performance of the last quarter century.

The changes we announce today will significantly reduce the running costs of the company through the reduction in the management fee, increase the annual participation in the success of the company through the dividend increase, and introduce a possible tender offer in five years.

We also welcome the broadening of the investment management team which will strengthen our access to the North Asian markets including China, where huge opportunities exist in small cap stocks.

Young said: “I am delighted to welcome Flavia Cheong as my co-manager.

“She will assist Gabriel Sacks and the teams in both North and South Asia in taking advantage of the opportunities that continue to present themselves across the Asian markets.

“The maturing of the stock markets in China over the last ten years opens up another fertile field for us to look for companies capable of delivering exceptional returns, particularly when combined with the rigorous Abrdn investment process that has served so well in the past.

“I remain as excited by the opportunities in Asia as I did when I first arrived in Singapore 30 years ago.

“I believe the changes announced today will strengthen both the investment proposition and underpin the future prospects of the company.”

Flavia Cheong said: “I am delighted to be joining the team at AAS.

“We are all very excited by the future of small companies across Asia.

“The successful implementation of the changes to the aims and policy of the company has my full and enthusiastic support and we all look forward to continuing the journey so ably started by Hugh in 1995.”

On the changes to investment policy, the trust said: “The company’s current investment objective and policy limits investment into companies that have a market capitalisation of up to approximately US$1.5 billion.

“The board strongly believes this is limiting the portfolio managers from investing in the high growth companies particularly in larger markets like China and India.

“As a result, the board proposes to remove this market capitalisation limit from the investment policy while stressing that this will remain as a small company portfolio.

“The investment managers will continue to seek out small companies capable of delivering strong capital growth.

“Historically, the company has had limited investments in Australasia and the board does not believe the outlook for this region will offer the same growth prospects as other parts of Asia.

“Therefore, the board proposes amending the investment policy so no new investments will be made in Australasia.

“The company currently has three holdings in Australasia and the investment manager does not intend to dispose of these should shareholders approve the change in investment policy.

“The changes to the investment objective and policy are subject to FCA and shareholder approval.”