Top picks 2013: Aberdeen Asia Pacific Income

This exchange-traded fund is a favorite way to play the Australian dollar and the bond market 'Down Under.'

By TheStockAdvisors Jan 3, 2013 12:58PM
 Globe copyright image100, CorbisBy Vivian Lewis, Global Investing

Aberdeen Asset Management owns some jewels. From its stable, Aberdeen Asia Pacific Income (FAX) is our top conservative idea for 2013.

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 41.5% of its stakes in Australia, FAX holds a diversified portfolio of bonds from: South Korea (10.7%); China and Malaysia (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.

Of its holdings 83% are investment grade. Its current yield is 3.5%.

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 also continuity in the management of what was once the First Australia Prime Income Fund.)

What with a very powerful Australian dollar hurting its trade, 'Down Under' is tending toward lowering interest rates to scare away foreign investors looking for yield.

That will 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 was to play the Aussie 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. In addition, I like the fact that the Australian bonds are now not the sole focus of this fund.

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Tags: FAX
Jan 3, 2013 6:58PM
Wonderful article!  Let it be known that a friend and I co-purchased FAX in 1986 for our experimental portfolio.  That friend is long gone but FAX lives on.  Its been a loyal and strong dividend payer for all those years and functions perfectly as an 'enhanced' money market fund to park cash for intermittent periods as well, given the price stability and credit quality of its underlying assets.

Thank you for the nod to FAX.

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