abrdn Asia Pacific Equity: January 2023 fund update

• This fund is run by a team with a long record of investing in Asia
• The managers look for companies in good financial health, run by robust and trustworthy management teams
• We like the team’s long-term focus, but willingness to be flexible in the hunt for the best opportunities
• This fund is on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

The abrdn Asia Pacific Equity fund aims for long-term growth by investing in a range of Asian markets, including both established and less-developed economies such as China, South Korea, Australia, and India. It could therefore provide broad exposure to the Asia Pacific region and diversify a global portfolio with a long-term view. Funds that focus on other regions, or specific countries, could be added alongside this one as part of a broader investment portfolio. The fund includes some investments in emerging markets, which adds risk.

Manager

abrdn is home to one of the most experienced teams investing in Asian companies. Hugh Young is now Chairman of Asia Pacific at abrdn, and was instrumental in setting up the group's Asian equities strategy in the late 1980s. We view it positively that he's still a part of the Asia Pacific Equities team, providing mentorship to the wider team.

Flavia Cheong is Head of Asia Pacific Equities – she’s also an experienced investor and leads the team of five directly looking after the fund, with key input into its final construction. A broader team of analysts and portfolio managers has been built over time, providing vital support on this fund and other Asian and emerging markets funds. Each team member contributes research and stock ideas, and we think their experience counts for a lot when it comes to investing across such a diverse range of economies.

The team is based across the globe, from Singapore and Bangkok to Hong Kong and Kuala Lumpur. This provides them with excellent access to companies, and insight into what's going on across the region.

Process

The team's investment philosophy is based on 'long-term quality'. They believe most investors underestimate the sustainability of returns that many high-quality companies can make. They aim to find companies which can generate long-term growth, that have been overlooked by others, and hold onto them for many years.

Companies in good financial health, run by robust and trustworthy management teams are favoured by the team. They often look for a change that could help boost profits in future, such as a new product or change in the use of technology. They sometimes invest in out-of-favour companies that can be bought at a more attractive share price.

Meeting company management is important to the team. While the world is currently a little different, they can typically do this regularly as team members are based throughout Asia. They also like to engage with companies on environmental, social and governance (ESG) issues that could lead to better outcomes for both investors and society over the long run.

The team typically favours businesses that rely on growing consumer wealth, though the fund has at least some exposure to most major sectors to keep it diversified. Importantly though, each company should be a leader within its market – for example, the business might offer a specialist product that isn't available elsewhere.

New investments in 2022 included the addition of National Australia Bank to the fund reflecting the managers' view of a more favourable lending environment. They also bought shares in Telkom Indonesia given the potential for it to hold up better through periods of market uncertainty. Some companies were sold from the fund over the period too. LG Energy Solution was sold after the shares performed well after listing on the stock market in favour of reallocating the proceeds to more attractively valued opportunities.

Culture

Aberdeen merged with Standard Life in 2017 to become Aberdeen Standard Investments, and has since renamed as abrdn. The Asian Equities team subsequently made some small changes to their investment process, though the core of their philosophy remains intact. We're pleased to see the team has settled and encouraged they're willing to learn and keep improving what they do.

The broader team is responsible for a range of Asian and emerging markets funds. Each member provides input to the wider franchise, and they're willing to share their knowledge and experience to ensure their best ideas make it into the portfolios.

ESG Integration

The team has always focused on companies with good corporate governance. Environmental and social issues have also become an increasingly important part of this over the years. Overall, the team’s work on ESG-related issues has grown over time, though this is not an exclusions-based fund, meaning it can invest in any sector. The team is also active in engaging with companies on ESG issues, which they believe could lead to better outcomes for both investors and society over the long run.

abrdn is a firm well known for its commitment to ESG. Responsible investing has been part of the business since it set up its Corporate Governance team in 1992 and launched its first ethical fund in 1994. We like that the firm’s policy positions on a range of divisive issues, from plastics and tobacco to palm oil and biodiversity, are easily available on their website. The firm also produces several ESG-related thought leadership articles on a monthly basis, a fortnightly podcast series and a quarterly Active Ownership report. We’re pleased to see that the firm’s commitment to ESG has filtered down to the fund level. abrdn fund managers generally see themselves as owners of businesses, not investors, and stewardship is an important part of their investment processes. The firm exercises all voting rights and engages with management to encourage best practice.

ESG and stewardship factors are included in every stock research note and each firm receives an ESG score, based on its ESG credentials and its ability to manage ESG risks. In fixed income, ESG risks are assessed and priced alongside other credit risks, and the managers encourage action that will reduce these risks. As with equities, each issuer receives an ESG risk rating. All managers have access to a central ESG team, as well as specialist on-desk analysts.

Cost

This fund has an ongoing annual charge of 0.85%, but we've secured HL clients an ongoing saving of 0.30%. This means you pay a net ongoing charge of 0.55%. The fund discount is achieved through a loyalty bonus, which could be subject to tax if held outside of an ISA or SIPP. The HL platform fee of up to 0.45% per year also applies.

Performance

abrdn Asia Pacific Equity has outperformed the average fund in the IA Asia Pacific ex Japan sector since launch in 1987. As always, past performance isn’t a guide to future returns.

There have been periods of weaker performance as well though and the fund didn’t perform as well as the sector average between 2013 and 2018. The team have made enhancements to their investment process since though. Team members now have more accountability for individual stock ideas. We’re pleased to see this improvement, and that there appears to be increased focus in the team.

Over the last 12 months the fund has delivered a return of -8.96% to investors, lagging the peer group return of -7.03%*. Among the most significant negative stock detractors were Taiwan Semiconductor Manufacturing Company and South Korean based Kakao. Some of the fund’s investments did perform well over the year though. This included insurer AIA Group and resources business BHP.

Over the longer term we think the team's focus on quality companies could help the fund hold up a bit better than others when markets fall, though this won’t happen all the time. This style means it might not do so well when the market races ahead. Like all funds, the value could fall as well as rise so investors could get back less than invested.

Past performance is not a guide to the future. Source: *Lipper IM to 31/12/2022.

Find out more about abrdn Asia Pacific Equity fund including charges

abrdn Asia Pacific Equity Key investor information