Mark Dampier: Aberdeen Asset fund digs up some real gems in Asia
Friday 02 November 2012
For many years, Aberdeen Asset Management has been the fund group to turn to for exposure to Asia and emerging markets. Hugh Young and his 40-strong Asian equity team have an outstanding reputation and a strong presence in the region with offices in Singapore, Bangkok, Hong Kong, Kuala Lumpur, Sydney and Tokyo.
I have been investing with the team for well over 20 years, and the it manages in excess of $100 billion. While it is best-known for its larger company funds, one of its lesser-known specialisms is Asian smaller companies, where it manages about $7 billion.
In this area, Mr Young and his team run an investment trust, Aberdeen Asian Smaller Companies, and the Asian Smaller Companies fund, a Luxembourg-based open-ended fund. There are advantages and disadvantages of both. The investment trust can 'gear up' through borrowing, so if this is used it can in theory produce higher returns when markets rise.
However, unlike the unit trust, there are a finite number of shares in issue and it frequently trades on a premium to its net assets, as it does at the moment. Therefore my preference in the short term would be the unit trust.
The first thing to say about Mr Young's approach is that it is truly long-term. He has been known to hold positions for well over a decade – quite refreshing given the short-term nature of many investors' thinking these days. Rather like Neil Woodford in the UK, this might help to explain his excellent record. Too much trading leads to extra costs, and quite often it is best to devote efforts towards finding superior companies and just stick with them.
Mr Young favours businesses that can be truly understood and valued properly. Although there is a lot of 'noise' in the market, over long periods of time it is the fundamentals of the underlying business that dictates the share price, and having a firm idea of what a business is worth is essential to making the decision to buy or sell.
Considerable emphasis is placed on company meetings, where the team's job is to get to know the management inside out. They assess a company's business prospects and strategy, looking for a clear vision to capitalise on industry growth, and an experienced, trustworthy management.
As you would expect, financial strength and transparency are also important, along with a commitment to running the company for the benefit of shareholders.
What I find exciting about this fund is that relatively few investors analyse smaller companies across Asia, so Mr Young and his team have the opportunity to uncover some real gems. Often stocks are bought in this fund before graduating to Aberdeen's larger company portfolios.
Their criteria to invest tend to be stringent, so it is encouraging they are uncovering lots of ideas, though interestingly some areas are a more plentiful source than others. In Australia, the team struggles to find good-quality smaller firms. But in Hong Kong, Malaysia and Thailand, there are lots of well-managed family businesses, especially in the consumer sector, which is well-placed to benefit from the surge in domestic spending across Asia. About 45% of the portfolio, including Thai retailer Siam Makro, Indonesian brewer Multi Bintang and Indian consumer group Godrej, is in this area.
I often like to hear Mr Young's view of market valuations as he usually has a good feel for this and tends to be a realist. He is somewhat cautious at present, believing the market has had a good run, and feeling valuations are reasonable though not cheap.
I do like it when managers give an honest appraisal, warts and all, of their sector, and it is especially useful in Asia where people can get overexcited. While this is a fund I think is worth tucking away for the long term, it is always worth trying to build up exposure on the dips if possible.
During weaker market periods, it will be worth examining the investment trust option too, in case it does slip to a discount to net assets. Mr Young himself owns mainly the investment trust, but I remain reluctant to buy at a premium.
Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial advisor and stockbroker. For more details about the funds included in this column, visit www.hl.co.uk/independent
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