A Yield to Caution

Article Excerpt

ABERDEEN ASIA-PACIFIC INCOME FUND $3.18 (Toronto symbol FAP; Shares outstanding: 50.7 million; Market cap: $161.2 million; Dividend yield: 8.5%; www.aberdeenstandard.com) invests in foreign currency bonds, mostly from Australia and Asian countries. The fund’s MER is a very high 1.18%. Note that Asian countries also issue bonds in U.S. currency as well as their own—although their ability to service those bonds depends on each individual country’s financial strength. The fund’s currency exposure right now includes U.S., 29.0%; Australian, 7.5%; Indian, 12.8%; Indonesian, 6.6%; Chinese yuan, 12.6%; Non-Asian markets, 7.6%; Malaysian, 7.7%; South Korean, 7.2%; Thai, 6.0%; and Canadian, 0.2%. Aberdeen Asia-Pacific Income pays a high 8.5% yield. It also trades at a 17.3% discount to its net asset value. That high yield and discount to net asset value is appealing. But while the fund earns interest on its bonds—and benefits from rising foreign currencies—it also falls in value when those currencies fall. Its exposure to countries like India, Indonesia, Thailand and Malaysia,…