Global Investing Editor Vivian Lewis chose the second- best performing Top Pick of 2012, an RBS preferred stock.
“Aberdeen Asset Management owns some jewels. I support one of the shares from its stable, Aberdeen Asia Pacific Income Fund, Inc. (FAX – yield 5.30%), a yield fund. FAX is the best vehicle I can think of for holding dollar and forex bonds from the emerging Pacific Rim countries, which of course pay higher yields than developed countries.
“Coupled with its 41.5% stake in Australia, FAX holds a diversified portfolio of bonds from South Korea (10.7%), China and Malaysia (ex aequo 7%), Thailand (6.4%), Indonesia (5.8%), The Philippines (5.4%), Hong Kong (4.9%), India (4.4%) and Singapore (3.1%). The remainder is bonds from developed countries in North America and Europe and New Zealand. The currency exposure is not high, as many of the Pacific Rim countries borrow U.S. dollars. Of its holdings, 83% are investment grade. ...
“This is the longest-held closed-end fund in my personal portfolio, discovered by my late father well before it was taken over by Aberdeen. The original Australian manager was taken on by the Scots so there is continuity in the management of what was First Australia Prime Income Fund in my father’s day. Unlike in my father’s day, Aberdeen has leveraged the fund by borrowing $600 million with a syndicated loan, which enhances the yield. The money it borrows, renewable annually, costs less than the interest its portfolio earns.
“With a very powerful Australian dollar hurting its trade, Down Under is tending toward lowering interest rates some more to scare away foreign investors looking for yield. That would push up the valuation of the Australian bonds, mostly government sector, already in its portfolio. The result would be a capital gain for us. While there are other ways to play the Australian dollar, now hovering at parity with the greenback, I think these people have the greatest experience in the game, well ahead of Johnny- come-lately currency exchange-traded funds. And I like the fact that the Australian bonds are now not the sole focus of this fund.”
Vivian Lewis, Global Investing, January 2013
