One strong choice in this space is the Australia Fund, which has a market cap of $229 million and positions itself for long-term capital appreciation using equities listed on the Australian Stock Exchange (ASX).
Closed-end funds still well priced
From a valuation perspective, IAF is characterized by strong upside momentum and is currently trading at a premium of 13.5%, relative to NAV. Valuations like this in closed-end funds suggest that strongly bullish sentiment is present in the market, and when this is coupled with its incredible dividend yield of more than 10%, IAF starts to look very attractive for investors with long-term time horizons. The Fund’s well-diversified portfolio is positioned to capitalize on the RBA’s supportive stance for exporters, and its elevated dividend payouts will help investors ride out any of the potential volatility that is generated once policy changes at the central bank start to take effect.
Alternatively, investors can look at the Aberdeen Australia Equity Fund Inc (NYSEMKT:IAF) Aberdeen Asia-Pacific Income Fund, Inc. (NYSEMKT:FAX), which offers a better contrarian play with a discount along with its already attractive 5.5% dividend yield. Aberdeen Asia-Pacific Income Fund, Inc. (NYSEMKT:FAX) is much better diversified from a regional perspective as well. Exposure in Australian assets makes up 38% of the fund, with the remainder devoted to developing markets. Assets tied to South Korea make up 9% of the fund, and positions in Malaysia and the Philippines come in next at 7% each.
Finding discounts
The fund has seen some selling in the early parts of the year, and now trades at a 7.5% discount to NAV which gives investors the opportunity to buy into these assets at a cheaper level than would be available individually on the open market. Recent credit upgrades for assets held by the fund create a strong outlook into the later parts of the year, and positions here allow investors to capitalize on the policy changes at the RBA while still taking advantage of the cheaper valuations and growth prospects present in emerging markets.
In all, Aberdeen Australia Equity Fund Inc (NYSEMKT:IAF) and Aberdeen Asia-Pacific Income Fund, Inc. (NYSEMKT:FAX) offer the potential for stability and growth, along with excellent dividend yields at a time when the macro environment is starting to favor Australian markets. This marks a large contrast when we compare these stocks to U.S. benchmarks. So, for investors looking to gain new regional exposure, Aberdeen Australia Equity Fund Inc (NYSEMKT:IAF) and Aberdeen Asia-Pacific Income Fund, Inc. (NYSEMKT:FAX) look very attractive.
Rick Bartlett has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Rick is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Supportive Rate Outlook to Benefit Australia Funds originally appeared on Fool.com is written by Rick Bartlett.
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