It’s a little over a year since Aberdeen Standard Asia Focus decided to trim its portfolio in an attempt to improve its performance (Greig Cameron writes). Stakes in Cabcharge, an Australian taxi operator, Hong Leong Finance, a financial services firm, and FJ Benjamin, a retailer, were among those ditched. The refreshed strategy, which began in November 2018, focuses on 30 core holdings and a mix of up to 30 others, compared with about 80 investments previously.
Nor was this the only change. Hugh Young, a veteran Asia specialist, was selected as sole named fund manager, having previously been part of a five-strong team picking stocks. And he seems satsified with the way things are going.
“The portfolio is in good shape and the businesses are strong,” Mr Young, 61, said yesterday, speaking from Singapore. “Most of them are market leaders or in a niche of a market where they are one of the dominant players.” Nevertheless, there are still a few changes to come. There are several holdings, making up less than 5 per cent of the trust’s total, that he intends to offload when market conditions are right.
The trust, formerly known as Aberdeen Asian Smaller Companies, was listed in London in 1995. It invests in businesses with a market capitalisation of up to $1.5 billion and can choose to go into unlisted equities, though it hasn’t done so yet. Much of its portfolio is domestically focused — that is on the countries where the companies are based. Mr Young believes that this approach can help to shelter the trust from global trade concerns, such as the tariff tit-for-tat between the United States and China.
The trust’s arsenal is quite widely spread across the region, including exposures in India, Thailand and Malaysia. Big holdings include the OCBC Nisp Bank in Indonesia, Asian Terminals, the port operator, and John Keells, Sri Lanka’s largest listed conglomerate boasting interests in hotels, IT, transport, retail, food and property.
The companies in the portfolio are also regular dividend payers. That, in turn, helps the trust to maintain its record of paying out increasing amounts to shareholders, with 19p going to those on the register for the 12 months to the end of July last year, up from 17p in the previous year.
The trust’s shares were changing hands for 948p in October 2018 and reached a peak of £11.50 in August last year. The stock was up 8.1 per cent over 2019, compared with 6.6 per cent for the MSCI Asia Pacific Small Cap Index, excluding Japan. Yesterday, the shares were down 10p, or 0.9 per cent, at £10.50.
According to Mr Young, the trust has little exposure in China, but is well aware of the potential impact of coronavirus on the wider region. “Trade will be affected, hotel bookings have collapsed, flights have been cancelled,” he said. “It will echo a bit through the system, whether it is Australian ore shipments to industry in China or other things. The million-dollar question is whether it is a blip for a quarter and then back to normal.”
Even though the Indian economy is “not firing on all cylinders” and there are issues in China, Mr Young remains bullish on the wider prospects for many economies across Asia, in spite of global headwinds. “My 30-odd year career has seen tariff barriers come down and for trade to become easier. There is the potential for those things to go into reverse, which I think is not particularly healthy for the world — but this portfolio, in particular, is relatively well-insulated [from that]. I always call it the tortoise that sort of plods along and then you think, ‘Actually it has done rather well.’ ”
Advice Hold
Why A defensive portfolio at a time of uncertainty, as well as a growing dividend. Tweak in strategy has had decent start
Drax
Britain’s energy sector is so enmeshed in policy and regulation that few utilities can claim to be wholly in charge of their own destinies — but few seem quite so lacking in control as Drax (Emily Gosden writes).
To recap, Drax started out burning coal at its North Yorkshire power plant, but was forced to rethink after the government began to penalise the fuel. It set about converting the plant to burn biomass wood pellets, which qualified for renewable electricity subsidies, only for the government to cool on biomass. It has converted four out of six units, but subsidies will end in 2027.
Now Drax has amassed an array of assets and projects offering potential growth — all of which are also dependent on unpredictable policy and regulation. With intermittent wind and solar power forecast to grow exponentially, Drax is focusing on reliable power plants that can fill in the gaps. To be viable, these are likely to need subsidy contracts from the government’s capacity market scheme, designed to ensure that there are always enough back-up power plants to keep the lights on.
One idea is to convert its remaining two coal units to a new gas-fired power plant, but a judicial review has just put that on hold. So far, capacity market subsidies appear too low to support it, anyway: Drax said yesterday it had not even taken contracts to keep the coal units open beyond 2022, or to go ahead with another proposed gas plant acquired from Scottish Power last year, although it did secure contracts for existing pumped storage, hydro and gas-fired plants. Drax also wants to make its biomass units viable to compete for such contracts by reducing their operating costs.
Its boldest plan is to turn the plant “carbon-negative” through carbon capture and storage, a plan that may make sense for the climate, but certainly won’t come cheap and as such is entirely dependent on the “right investment and regulatory framework”.
Tempus advised avoiding Drax almost a year ago, when its shares were trading at 370p. They are now at 282p, which some may see a buying opportunity. However, with so much uncertainty ahead, Tempus is still steering clear.
Advice Avoid
Why Destiny still beyond its control
