AE Portfolio Conservative Holding Aberdeen Asia-Pacific Income Fund (NYSE: FAX) is one of only five out of a universe of 106 US closed-end funds with a “Gold” rating from investment research firm Morningstar.

The fund was so cited because it’s the only one of its kind that enables US-based investors to access developing Asia’s debt markets as well as Australia’s. In fact very few funds of any kind provide individuals the opportunity to invest in bonds issued in the difficult-to-reach Asia-Pacific region.

The fund is not just about Australia. It includes significant exposure to bonds of emerging market countries such as the Philippines, Malaysia and Indonesia.

Developed and emerging economies in the Asia-Pacific region continue to account for increasing shares of global economic growth and will account for an estimated 49 percent of world gross domestic product (GDP) by 2050, up from 29 percent in 2011.

Accumulated debt in the developed world and the steps that must be taken to address same threaten to impair growth in those markets for years to come.

Aberdeen Asia-Pacific Income Fund is a compelling option for income-focused investors who also seek some protection from the impact of a deteriorating US dollar. At the same time you’ll get paid USD0.035 per share per month, an annualized dividend rate of USD0.42 per share. That works out to a yield of 6.7 percent based on the fund’s June 11, 2014, closing price.

As of June 10 the Fund reported a net asset value (NAV) of USD6.86. It was trading at a 9.2 percent discount to NAV.

Recent weakness for the Australian dollar has had a significant impact on the Fund, which has posted a loss of 12.5 percent since we added it to the Portfolio in October 2012. But longer-term factors suggest plenty of upside from here.

The unveiling of Australia’s federal budget for fiscal 2015 has been met with a great deal of controversy, primarily for the breadth and depth of the spending cuts contemplated by Prime Minister Tony Abbott and his center-right coalition government.

Mr. Abbott has emphasized the primacy of maintaining Australia’s AAA credit rating, indeed long-term support for the country and its currency is driven by international investor appetite for AAA-rated credits, and Australia is one of the few sovereigns remaining with such a designation.

To retain its AAA rating everything else needs to remain very strong, including public finances.

Cutting federal budget deficits is therefore a significant issue for Australians concerned with sovereign credit ratings. That’s not to say a credit rating cut is imminent.

Quite the contrary: S&P’s lead Australia analyst stated on May 20, 2014, that “there is no immediate risk to the AAA credit rating.”

In fact S&P currently has a “stable” outlook for Australia and its AAA rating, which means the credit rating agency sees a less than one-in-three chance of a change over the next couple of years.

S&P is looking for Australian government to run its finances prudently and to gradually improve budget performance so deficits decline over the medium term.

S&P noted that the federal budget introduced on May 13, 2014, is consistent with this approach.

The budget features significant structural reform to tackle a deficit that’s estimated by the Abbott government to be AUD47 billion for fiscal 2014, including a dramatic downsizing of government bureaucracy.

It also contained significant changes to welfare, new initiatives for a medical research fund and spending on roads. The budget is pending passage in the Parliament of Australia, with many key elements in doubt of passing the Australian Senate.

There’s always negotiation post-budget announcement to get measures through Parliament. But there is no immediate risk to Australia’s rating.

The four-year forward estimates project a difference of AUD60 billion. More than half of that difference has been attributed to lower government revenue from taxation. A surplus is projected for no earlier than fiscal 2019.

Despite the size and run of deficits, ratings agencies assume Australia will restore the budget to surplus and pay down debt.

Actually, Australia boasts the second-lowest ratio of public debt to GDP in the developed world.

The financial crisis that began in late 2007, with its mix of liquidity crunch, decreased tax revenues, huge economic stimulus programs, recapitalizations of banks and so on and so forth, led to a dramatic increase in the public debt for most advanced economies.

Public debt, also called “government debt” or “national debt,” includes money owed by the government to creditors within the country (domestic, or internal, debt) as well as to international creditors (foreign, or external, debt).

Among Organization for Economic Development (OECD) countries, Australia, with public debt as a percentage of GDP of 28 percent in 2014, ranks second only to Estonia, with debt of less than 16 percent of GDP.

Public debt as a percent of GDP in OECD countries as a whole went from hovering around 70 percent throughout the 1990s to almost 110 percent in 2012. It’s now projected to grow to 112.5 percent of GDP by 2014, possibly rising even higher in the following years.

This trend is visible not only in countries with a history of debt problems, including Japan, Italy, Belgium and Greece–but also in countries where it was relatively low before the Global Financial Crisis/Great Recession, such as the US, the UK, France, Portugal and Ireland.

Although Australia’s public debt is lower than most other comparable AAA-rated nations–it’s less than half that of Canada, for example–Australia’s rating carries an implicit assumption the federal government would bail out local banks in a crisis.

Australia is unusual among the 12 nations granted S&P’s AAA rating because it relies heavily on foreign investors for capital.

Its four major banks–Australia & New Zealand Banking Group Ltd (ASX: ANZ, OTC: ANEWF, ADR: ANZBY), Commonwealth Bank of Australia (ASX: CBA, OTC: CBAUF, ADR: CMWAY), National Australia Bank (ASX: NAB, OTC: NAUBF, ADR: NABZY) and Westpac Banking Corp (ASX: WBC, NYSE: WBK)–are heavily dependent on external financing.

The preference for S&P, among other rating agencies, for lower Australian public debt as rule reflects the necessity of being able to respond to a crisis.

In other respects Australia compares favorably to developed-world peers.

The Reserve Bank of Australia’s benchmark cash rate is 2.5 percent, still among the highest in the developed world, even after a series of cuts that have brought it down from 4.75 percent. The RBA has cut to record lows–lower even than during the Global Financial Crisis/Great Recession–as the central bank has moved to cushion the economy against a slowdown in mining investment from record levels.

The unemployment rate Down Under held steady in May at 5.8 percent, according to the Australian Bureau of Statistics, easing concern over a fading mining-investment boom. Economists had expected unemployment to rise to 5.9 percent.

Unemployment has drifted up in the past year, reaching its highest level in a decade at the start of 2014. Recent job-market indicators have pointed to an improvement in hiring, but population growth is also strong, leaving rate unemployment rate elevated.

Australia’s GDP growth in the first quarter of 2014 grew was 0.8 percent, 3.2 percent on an annualized basis and the fastest pace since the second quarter of 2012.

Meanwhile, exports of goods and services have grown by 10.4 percent on a seasonally adjusted basis over the past 12 months, the strongest growth for more than a decade. Trend growth of 7.9 percent is the biggest since September 2000.

And the mining sector contributed 1.1 percentage points towards the annual growth in exports, well in front of the finance and insurance industry’s 0.6 percentage point contribution, demonstrating that though it may be slowing the boom isn’t dead.

The RBA will likely maintain its low-rate posture for the foreseeable future, or until employment growth strengthens some more. But there are good signs emerging from Down Under.

The interest rate spread makes its government-issued debt look relatively attractive. Combined with Australia’s solid underlying fundamentals, evidenced by the fact that the country has gone more than two decades without entering recession, its strong fiscal position and its traditional approach to monetary policy, demand for Australian-dollar denominated assets has strengthened markedly in recent years.

Foreign central banks and sovereign wealth funds (SWF) have taken significant steps over the past decade-plus to diversify their reserves, with Australian-dollar-denominated assets an increasingly attractive alternative.

Aberdeen Asia-Pacific Income Fund’s returns are denominated in US dollars. Performance is affected by how the US dollar fares against these currencies, though it is highly correlated with the Australian dollar’s movements against the buck.

Australian government and corporate bonds account for 39.7 percent of Aberdeen Asia-Pacific Income Fund’s holdings.

South Korea is the No. 2 market in terms of geographic exposure with 12.1 percent of assets, followed by China (10.7 percent), Hong Kong (6.2 percent), Indonesia (5.7 percent), the Philippines (5.1 percent), Malaysia (4.7 percent), Thailand (4.4 percent), India (3.7 percent), Singapore (2.4 percent), Germany (1.6 percent), Sri Lanka and the UK (1 percent), Norway (0.8 percent), Canada and the US (0.4 percent) and New Zealand (0.1 percent).

As of April 30, 2014, the Fund’s currency exposure was weighted toward the US dollar at 49.5 percent, with 37.3 percent invested in US-dollar-denominated bonds issued by foreign investors.

Australian dollar exposure was 42 percent.

The Chinese yuan accounts for 4.1 percent of currency exposure, the Malaysian ringgit 1.3 percent, the Sri Lankan rupee 0.7 percent, the Indian rupee 0.6 percent, the Singaporean dollar 0.5 percent, the South Korean won 0.5 percent, the Thai bhat 0.4 percent, the Indonesian rupiah 0.2 percent, the Philippine peso 0.1 percent and the New Zealand dollar 0.1 percent.

As of April 30, 2014, the Fund’s net assets, including USD600 million in bank borrowing, amounted to USD2.4 billion. The holdings of the portfolio represented approximately 54.9 percent sovereign and state government securities, 39.3 percent corporates, 5.1 percent supranationals, 0.3 percent mortgage-backed securities and 0.4 percent cash.

As of April 30 68.1 percent of the portfolio was invested in securities where either the issue or the issuer was rated A or better or was judged by the fund’s manager to be of equivalent quality; 35 percent of holdings were rated AAA or Aaa, 14 percent were rated AA or Aa, 19.1 percent were rated A, 16.2 percent were rated BBB or Baa, 10.4 percent were rated BB or Ba and 3.1 percent were rated B.

The average maturity of the portfolio at the most recent reporting date was 6.3 years, with 30.9 percent of holdings maturing in less than three years, 17.8 percent maturing in three to five years, 42 percent maturing in five to 10 years and 9.3 percent maturing in more than 10 years.

The Fund utilizes various forms of leverage, with a total outstanding balance as of April 30, 2014, of USD600 million.

Borrowings consist of USD50 million in 10-year privately issued mandatorily redeemable preferred stock, USD100 million in seven-year privately placed senior secured notes, USD100 million in 10-year privately placed senior secured notes, USD100 million in a three-year term loan, USD100 million in a five-year term loan and USD150 million in a three-year syndicated revolving credit facility.

Australia is tied to emerging-market growth in Asia, particularly China. The Middle Kingdom has been the prime catalyst for a resource boom that’s powered the second half of Australia’s two-decade-plus run without slipping into recession. Indeed the Lucky Country was spared the worst effects of the global financial crisis-led Great Recession, as it was the ills of the dot-com driven 2000-01 downturn.

The fundamental strengths as well as the strong fiscal positions of Australian state and federal governments also instill confidence in investors.

Australia’s proximity to high-growth Asian economies ensures it will have markets for its ample stores of industrial resources such as iron ore, coal, natural gas and, increasingly, foodstuffs such as wheat and livestock for decades to come.

Australia remains a “risk on” play, as its fortunes are clearly tied to global demand growth, particularly from Asia. When prospects are bright and investors are bullish, the Australian dollar rallies. When the mood darkens and money searches for safety, the aussie sells off.

But over the course of the past decade investors–institutions as well as sovereigns–have purchased increasing amounts of Australian-dollar denominated bonds, corporates and governments. This diversification has come at the expense of developed world currencies such as the US dollar, the British pound, the euro and the Japanese yen.

For those who want a steady yield and currency play with little credit or interest rate risk, AE Portfolio Conservative Holding Aberdeen Asia-Pacific Income Fund is a solid buy up to USD9 on the New York Stock Exchange using the symbol FAX.

Dividend reinvestment and direct purchase are available via the Fund’s transfer agent, Computershare. Click here for more information.

Closed-end funds (or closed-ended funds) are mutual funds with a fixed number of shares (or units). Unlike open-end funds, new shares/units are not created by managers, to meet demand from investors, but the shares can only be purchased (and sold) in the market.

Under US tax rules applicable to the Fund, the amount and character of distributable income for each fiscal year can be finally determined only as of the end of the Fund’s fiscal year.

The Fund anticipates that sources of distributions to shareholders may include net investment income, net realized short-term capital gains, net realized long-term capital gains and return of capital.

The estimated composition of the distributions may vary from time to time because the estimated composition may be impacted by future income, expenses and realized gains and losses on securities.