I have been a fan of emerging markets for the 27 years I have been in the industry.
I started a savings plan for my son in 1990 when he was born, and I am glad to see Aberdeen Emerging Markets has not let him down during this time. So I am grateful to Hugh Young, head of the emerging markets team at Aberdeen, and Devan Kaloo, the lead manager of the fund, who I recently caught up with for an update.
Rather than looking at the wider economic picture, the Aberdeen team places far more emphasis on analysing individual companies, with a focus on finding good-quality firms. You might think all fund managers do that, but in my view that is not the case. The Aberdeen team closely scrutinises the management of the company and ensures any firm it invests in has a balance sheet it fully understands. The team also looks for a business with an edge over its competition, and whose earnings should be resilient through a complete economic cycle.
This style is often characterised as being very defensive, but Mr Kaloo was keen to dispel this. He believes he and his colleagues are conservative in what they buy, but quite aggressive on how they allocate that money. When the market rallied strongly from its low point in 2008, they weren't invested in defensive shares, instead owning industrial companies that would benefit from economic recovery. These had suffered sharp share-price falls in many cases, but Aberdeen felt they would survive and eventually prosper, though it could not be sure of the timescale.
When I asked Mr Kaloo where the team was finding the best value at the moment, he said he was something of a reluctant buyer at present, feeling that many markets were not particularly cheap. While he did not consider them expensive either, he would like to see a correction in order to buy into stocks at lower levels. Whether we will see one is a moot point, and any downturn could be short-lived with the amount of money flowing into this area. In contrast to many countries in the West, emerging markets are generally in good economic health and an increasingly attractive proposition for investors around the world. Notably, lending activity is growing and local consumer demand is strong, unburdened by high levels of debt.
Areas where he sees particular value include Mexico, Turkey and Thailand. In these areas, Aberdeen is finding opportunities such as Akbank in Turkey, a well-capitalised and conservative bank with a leading market share, and Siam Cement, Thailand's largest cement producer, which has a strong balance sheet and an attractive yield.
Another region the team is keen on is the subject of last week's column, India. The country is less dependent on exports than most other emerging markets and, although valuations appear high, earnings growth is very strong. Mr Kaloo also believes that corporate governance is good among the major stocks, in contrast to other emerging markets such as Russia, where he is far more nervous. Here he feels there is a distinct lack of transparency in energy stocks, and areas that are more attractive, such as consumer stocks, are expensive.
The Aberdeen Emerging Markets team is one of the most experienced and disciplined group of investors you will find. Its long-term approach and low level of trading activity appeals to me and I am as keen on the fund now as I was back in 1990. Whether you are looking for a fund to form the core of your emerging-market exposure, or simply looking to make your first equity-based investment, I think this is worthy of consideration. If you are already a holder, I suggest you look to top up, particularly if we see a market correction. Alas, with so much money going into emerging markets, I suspect we won't see much of one.
Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit www.h-l.co.uk/independentReuse content