The central market story so far this year has been the new all-time highs posted in both the Dow and S&P 500. As we head into the summer months, valuations have posted downside corrections but these declines have been limited. So, for investors looking to gain long-term, diversified exposure to growth assets in emerging Asia, some alternative approaches should be considered. One alternative can be seen when using closed-end funds (CEFs), as their limited number of shares create scenarios where investors can gain exposure to promising growth assets at a discount to net asset value (NAV).
This is largely because valuations in CEFs are more closely connected to supply and demand, and with price levels in the benchmark indices holding near long-term highs investors should consider these alternatives to the more regularly used ETFs and mutual funds. Here, we will look at two well-managed funds with diversified asset portfolios that offer long-term growth investors exposure to a discounted group of stocks in emerging Asia.
The Asia Pacific Fund
As the global recovery pushes forward, and market valuations continue to improve, investment bargains are harder to come by. CEFs investments help to counter some of these expensive market conditions and one strong option can be seen in the Asia Pacific Fund (APB) which trades at a 10.2% discount to NAV with a market cap of $112 million. Portfolio strategy in the fund is focused on changes in consumer demographic trends, as a rising middle class and improved domestic consumption removes some of the need to rely on Western demand for Asian exports.
Portfolio manager Hyung Jin Lee explains that the fund's holdings in consumption and healthcare in South East Asia and China should continue to benefit from sustained growth in demand: "Given the growing maturation of these economies, especially with regard to disposal income, demand growth for such things as healthcare should remain robust for many years," Lee says. But these gains are widespread characteristics of the region and will not be limited to individual countries. One of the often-overlooked region the fund watched by the fund is Indonesia, which recently instituted a universal healthcare system that will create obvious benefits for healthcare and pharmaceutical companies in the country.
The Asia-Pacific Income Fund
For investors that place a higher premium on dividends and income-based strategies, the Aberdeen Asia-Pacific Income Fund (FAX) should also be considered. The fund offers access for investors looking to gain exposure to bond markets in emerging Asia. With a market cap of $1.7 billion, a dividend yield of 5.49%, the fund has fallen off from the yearly seen in January. This pullback creates new opportunities to buy in and gain exposure to emerging Asia's bond markets. The Asia-Pacific fund trades at a 7.4% discount to NAV, and offers some stability features that will be viewed as beneficial for investors with lower tolerance for volatility.
Specifically, this comes from the fund's diversification into Australian assets, which is a feature that is not seen in many of its emerging Asia counterparts. Credit rating upgrades in many nations in the region have been levied on improving economic fundamentals and a higher level of attention paid to the social security net for Asia's aging populations will inevitably lead to increased demand for long-dated assets. The broader picture shows that this is a bullish scenario for the region, and the Asia-Pacific fund is well-positioned for long-term gains for investors with lower risk tolerance and a focus on income-based strategies.
So, as global benchmarks hold close to yearly all-time highs, investors will need to consider new alternatives in finding well-positioned investments that show reasonable valuations. Equity and fixed income funds that focus on emerging Asia can still be found when CEFs are considered. The Asia Pacific Fund and the Aberdeen Asia-Pacific offer attractive opportunities for those looking for reasonable valuations and diversification away from the continued weakness that is seen now in the developed world.