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Aberdeen Asia-Pacific Income Fu Message Board

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  • flipper_58 flipper_58 Apr 20, 1999 6:10 PM Flag

    FAX is worth...

    You are right on the mark in comparsion
    "shopping". It fun to try and guess a FMV(Fair Market Value).
    And as you say it has to start somewhere and a 3
    month T-bill is always the start for any U.S.

    A few thoughts to add:

    Appx. 15% of the
    funds dividend is "return of capital" or captial gains
    paid out. Thus that does not reflect a "real" source
    of reoccurring income so I'd cut that part out in a
    T-bill comparison. Or $.10

    The credit quality of
    the income is good, but since it's a fund with no
    maturity a risk premium has to be included for volitility.
    Ususally some kind of variance from the mean kind number
    or standard deviation. At this point the stock is
    right in the middle of it's high and low for 52 weeks,
    about 18% either way variance. Last year I think was an
    unusual year with lots of price movement so it's probably
    some where in the 10% up or down area for varience. I
    want at least half of 10% up or down varience for
    principle protection each year. Or 5%($.50/year)

    if you add the riskless rate(4.5%) and the principle
    risk premium (5%)your looking at 9-10% for this fund.
    Take away the return of capital($.10)and you have a
    FMV of $6.50($.62/.095).

    But I do feel the
    fundamentals can get stronger to move the fund higher in the
    long term. We've certainly discussed this at lenght in
    the past. And of course risk is a perceived thing and
    will vary depending on the last bad occurrance I
    guess. Lastly the fund is at a discount so the payout of
    NAV doesn't become a real problem till the fund is at
    a preium I'd think. So in reality there is probably
    not any reason to cut out he capital gains
    distributions till the fund is at a preium. I personally like
    to see a little discount. Any thoughts

    I don't know if this makes sense or not, the more
    Wall Street comes up with tools to figure things out
    the worse the outcome it seems.

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • You gentlemen have done a pretty good analysis.
      Another way is risk free return + beta x market premium,
      which would give a little higher price since I believe
      beta is shy of 1.0 for FAX.
      Who knows what the
      market premium is in this crazy market though?
      percent is a good textbook number, but the market seems
      to demand nothing from earnings or dividend yield
      and expect 20% from capital gains. In truth, I think
      FAX is about right...maybe good for 7. What do you
      think of KBA? Look at the discount from NAV. Thanks for
      your thoughtful analysis. It is good to have company
      like you guys. -wrayce.

      • 1 Reply to wrayce
      • at a large discount because it is generating poor
        earnings. Two other closed end funds selling at large
        discounts but with better earnings than KBA are MMT and
        KMM. If you look closely at the company that manages
        KBA you may find that their management fee is based
        on NAV and not market value which is true of KMM
        which is managed by Scudder. The companies managing
        these closed end funds are primarily concerned with
        generating income for themselves through the fees they
        charge to the fund for management. One way shareholders
        can take advantage of large discounts to NAV is to
        force the BOD of the managing company to convert the
        closed end fund to an open end fund which brings the
        market value up to the NAV immediately.

    • your thoughtful post.

      1)Risk. Nothing is
      more important. As Will Rogers said, "I am more
      concerned with return of my investment than return on my
      investment." Yet nothing is more difficult to evaluate,
      because it includes too many factors and too many
      unknowns. The answer is to diversify one's portfolio, and
      not to risk funds one absolutely cannot afford to

      2)Capital Return. I disagree with your calculation of these
      effects. If part of the dividend is non-taxable, that
      INCREASES the value of the return (in my case, by 38% of
      the portion not taxed). I simplified my analysis by
      leaving out tax effects, because they differ for each
      individual AND because it really complicates comparisons of
      returns between alternative investments when you have
      different (and perhaps unknown at present) percentages of
      taxable returns.

      • 1 Reply to GodtheCreator
      • I'm sorry I probably should have not used words
        "return of capital" in my last post. The part of the
        dividend we collect is NOT "return of capital" from an IRS
        standpoint, it is fully taxable. FAX is actually distributing
        part of it's NAV to meet the monthly dividend. It's
        part out of capital gains from it's bond

        But since this fund is at a discount I agree removing
        the $.10 from the previous math makes sense. BUt
        since removing the $.10 now puts the FMV at a premium
        ($.72/.095) Lets call FMV, NAV or $7.

        I have debated
        with friends a little on this. They feel a yield a
        little higher then the junk market is FMV. But if you
        buy a series of junk funds you generally know what
        you going to get in the end, your principle, this is
        not the case with FAX. Of course you could end with
        MORE then you started...what a bonus!

        Of course
        this doesn't mean the price can't go to $9 as the
        fundamentals get stronger as I feel they will.

        for your responses.

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