Abrdn Asn Inc Share Price (AAIF)

SOI discount to NAV now under 5%.

If you look at the 5 year performance of SOI v AAIF,

allowing for the AAIF higher yield - then total return is very similar.

May be some give back in equities over the summer months, but even so the current dividend is attractive.

Keep in mind ABDN has sacrificed 6 months of annual

management fee this year - hence the larger buy backs.

Actuary63,

I have always had respect for you technical ability and you have put more effort into your investigation than I did.

However by different methods we both come up with a similar number for capital return 1.4% against 1.5 - 1.6% but then I had a lower portfolio yield. These numbers I think can now be taken as a reasonable estimate of AAIF capital return.

Hello Everyone,

I have done my own calculations to examine whether AAIF is, to some extent, using the dubious approach of HFEL to boost its dividend income. Many thanks to ade2a for raising this important issue and doing his own calculations.

The first questions is what the underlying dividend yield on AAIF's stock portfolio is. I have calculated the weighted average dividend yield for all 58 stocks listed in the Annual Report to be 4.45%, which is a little higher than ade2a's figure based on the top 10 stocks. There is a huge variation in dividend yields, with many of the lower-weighting stocks having very high yields that pull up the average.

The next step is to calculate how much annual dividend income these stocks would have generated on a buy-and-hold basis. The market value of the stock portfolio at the end of 2023 was £430m, so the expected income on a buy-and hold basis would have been $430m x 4.45% = £19.1m.

Now let's compare this figure with the actual dividend income given in the Income statement for 2023. This was a higher figure £23.3m. Hence AAIF somehow generated an extra £4.2m of dividend income through its transactions in 2023. I'm afraid there is no other explanation than the same "dividend-washing" tactics of HFEL. The annual capital depreciation resulting from this approach is given by £4.2m / 430m, i.e. close to 1%.

In addition to this, the Capital column of the income statement indicates that £1.83m of the investment management fee is deducted from capital rather than income. This gives a total figure for annual capital depreciation of:

(4.2 + 1.83) / 430 = 1.4%

CONCLUSION

AAIF is generating additional dividend income by buying shares cum dividend and selling them ex-dividend (aka "dividend--washing"). Along with the management fee, this will results in a drag of 1.4% per annum on growth in future dividend income. In other words, the underlying dividend income on the portfolio needs to grow by 1.4% per annum just to maintain same dividend per AAIF share.

Now converting capital growth into dividend-income might be quite a sensible thing to do. I would prefer to have a dividend yield of 5.4% per annum growing at the rate of inflation than a 4% dividend yield growing at 1.4% above the rate of inflation. But the use of a covert dividend-washing strategy is not acceptable in my view. The AAIF fund managers need to come clean about what they are doing and justify their approach, explaining why it is preferable to writing call options on the shares they hold, which does not require a large turnover of the portfolio.

Lastly, we should not forget that AAIF is trading at a 14% discount to net asset value. This is creating a 0.8% increase in dividend yield which offsets most of the management fee. For this reason alone, I won't be selling my AAIF shares right now.

Name Yield Weighting Yield*Weighted Yield

TSMC 1.67% 8.20% 0.136940%

Samsung Electronics (Pref) 2.71% 6.60% 0.178860%

BHP Biliton 5.30% 4.50% 0.238500%

DBS 5.33% 3.50% 0.186550%

Oversea-Chinese Banking Corporation 6.08% 3.30% 0.200640%

MediaTek 4.60% 3.00% 0.138000%

Power Grid Corp 4.35% 2.80% 0.121800%

Venture Corporation 5.26% 2.60% 0.136760%

United Overseas Bank 5.80% 2.50% 0.145000%

Rio Tinto 5.37% 2.40% 0.128880%

Totals Average yield 4.65% 39.40% 1.611930% WEIGHTED YIELD 4.09%

NAV 238.59 Yield to assets 5.00%

Share price 208.00 Yield to share price 5.60%

Earnings 11.97

Dividend 11.75

We can see that the weighted yield for the top ten holdings is 4.09%. I am assuming these fundamentals are typical for the rest of the holdings. If charges were taken from income rather than capital the fund would yield about 3.2% we might want to add about 0.25% = 3.45% for gearing in favourable conditions.

The yield to NAV is about 5% therefore 1.6% let us say 1.5% of our income return one way or another will come from the capital account.

Many UK income funds distribute more than the yield on the underlying assets. There is no free lunch here and part of the income return from many funds is simply a return of our own capital.