The £269.7m Aberdeen Asian Income investment trust significantly outperformed its benchmark last year, aided by underweights to China, India and Taiwan.
According to its annual financial results, the fund’s diluted net asset value total return was 2.2% for the year to December 31 compared with the 14.8% fall seen in the MSCI All Country Asia Pacific ex-Japan index.
The investment manager’s review explains that the underweight positions in China and Taiwan, as well as the lack of any exposure to India, made a positive contribution to relative performance.
“In China, our underweight position reflects a lack of exposure to financials, which constitutes about 20% of the local index,” according to the report. “Mainland banks were among the weakest performers during the year and, as such, not holding them helped performance.”
The trust also avoided financial companies in Taiwan, preferring to hold stocks such as Taiwan Semiconductor Manufacturing and Taiwan Mobile that have healthy balance sheets and growing market shares.
In addition, the review notes that the Indian domestic market was affected by “persistently high inflation, elevated funding costs and policy stasis”, which held back growth, weakened the rupee and increased foreign outflows.
“We do not hold any Indian companies as their dividend yields are relatively unappealing,” the investment manager says, noting rising concerns over Indian corporate profits and US dollar-denominated debt.
The review concludes that relative performance in 2011 was hampered by the lack of exposure to Indonesian and Korean equities.
However, the manager says Indonesia is likely to be avoided in the future as pricing can be “irrational” in the telecommunications sector, where most of the dividend-paying companies are clustered.
Korea will also be avoided because of its lax corporate governance and tendency not to pay out attractive dividends.