Buy Aberdeen New Dawn at a discount

IC TIP RATING

Tip style: INCOME

Risk rating: HIGH

Timescale: LONG TERM

ABD has not performed as well as funds like First State Asia Pacific Leaders (GB00B54S3722) and Schroder Asia Pacific Investment Trust (SPD), but it is a good Asian fund for investors twitchy about Chinese growth and provides a dividend yield.

The trust is trading at a 12.19 per cent discount, beneath its 12-month average of 10.27 per cent and double its six-month tightest discount of 6 per cent. That makes it a cheaper option than Henderson Asset Managers Far East Income (HFEL) despite comparable long-term returns and a better dividend yield. HFEL is trading at a premium of 1.52 per cent and Aberdeen Asian Income (AAIF) at a -3.09 per cent discount.

Aberdeen New Dawn's dividend yield stands at 1.94 per cent, compared with 4.02 per cent for AAIF, HFEL at 5.49 per cent and 3.75 per cent for Schroder Oriental Income Fund (SOI).

Over a five-year period the fund has also outperformed the benchmark by over 10 percentage points, with a total return of 44.97 per cent. In that time it has delivered dividend growth of 12.47 per cent, according to Morningstar data.

But the trust took a hit in 2013 when its value approach and focus on quality companies failed to pay off in a market when high-quality underperformed low quality. It fell by a dramatic 10.01 per cent compared with a 1.49 per cent rise in the MSCI AC Asia Pacific ex Japan index. But it pulled back the following year by outperforming the benchmark by just over two percentage points and has demonstrated a consistent approach and the longevity of the team's experience.

Led by Hugh Young since its launch in 1989 the team has retained the same strategy, looking for competitive business models, strong balance sheets and high returns on capital.

It is a good choice for those who are bearish on China and bullish on India. Although Mr Young's stock selection process is bottom up rather than regionally focused, the fund is typically underweight Chinese equities, with 5.4 per cent invested in the country currently as opposed to 12.4 per cent for the index. The fund's single largest holding is currently in Aberdeen Global Indian Equity, at 11.6 per cent and India country exposure stands at 20.3 per cent despite an only 9.5 per cent exposure in the index. The fund is also largely underweight Australia due to a faith in a stronger Asian consumer.

There is no doubt that this is a risky and reasonably volatile play. According to Morningstar price volatility figures, it was more volatile than the index over a three-, six-month and one-year period. In three months, its price volatility figure, calculated by annualised standard deviation, was 19 compared with benchmark volatility of 12 and in a year price volatility stood at 18 compared with 10 for the benchmark.

However, compared with other similar funds, the trust is also a straightforward structure, with no performance fees and reasonably low ongoing charge of 1.2 per cent compared with Aberdeen Asian Income at 1.24 per cent.

For a long-term bet on Asian equities at a dramatic discount, buy.

ABERDEEN NEW DAWN (ABD) KEY FACTS

DISCRETE ANNUAL TOTAL RETURNS %

CUMULATIVE RETURNS VS BENCHMARK %

TOP 10 HOLDINGS**

GEOGRAPHIC BREAKDOWN

*Source: FEAnalytics, as at 19 February 2015

**Source: Morningstar, as at 19 February 2015