- Aberdeen’s Asian equities team seek undervalued, quality companies
- Recent performance has improved following a short-term period of underperformance
- We continue to favour their long-term, disciplined investment approach
The Asian equities team at Aberdeen are well-known for their meticulous research and disciplined investment approach. They are unyielding in their quest to find only the highest-quality companies, which they can purchase at sensible valuations.
The team have built an exceptional long-term track record investing in Asian markets, although their Aberdeen Asia Pacific Equity Fund went through a more challenging time from mid-2012 until the start of this year. We recently met Hugh Young, managing director of Aberdeen Asia, to discuss the fund and its performance in more detail.
A lack of exposure to strong-performing internet-related companies, particularly those based in China, held back returns in 2013. Many of these businesses have been listed on the stock market for a relatively short period of time and, in some cases, their management teams have limited experience of engaging with shareholders. As such, these companies have not met the team’s strict quality criteria and corporate governance standards.
A number of property-related firms and banks, including Standard Chartered, also dragged on performance. According to Hugh Young, Standard Chartered’s costs rose following the 2008 financial crisis as it attempted to take market share from struggling competitors. The bank should have subsequently worked on reducing costs, but they failed to do so. New management are now in place, which he views positively. The company’s share price recently rose and the team took the opportunity to take profits.
Commodity-related companies, such as Rio Tinto and BHP Billiton, were also weak against a backdrop of falling commodity prices. The team maintained their long-term investments in these businesses, however, favoured for their conservative management and efficient allocation of resources. Their share prices have performed well more recently and profits have also been taken from these holdings.
The team take a truly long-term approach to investing; meaning significant changes to the portfolio are made infrequently. They have, however, recently initiated a position in Naver, a Korean search portal operator with a dominant share of the market. The company is benefiting from increasing smartphone usage and rising levels of online advertising. Strong cash flows will also enable it to enhance and invest in other parts of the business. Overall the fund is a relatively concentrated portfolio, which enables each holding to make a significant impact on returns, although this is a higher-risk approach.
Our view on this fund
The fund has been through a short-term period of weaker performance, however, we recognise all managers go through periods of underperformance. We maintain conviction in the team’s long-standing investment approach, which has been applied consistently for almost 30 years and delivered strong long-term results.
Asian stock markets have recently performed well, partly as the weakness of sterling has boosted the returns from overseas assets for UK investors. We continue to believe Asian markets represent good value and offer exciting long-term growth potential, although shorter-term periods of volatility should be expected when investing in this higher-risk region.
The Aberdeen Asia Pacific Equity Fund remains one of our favoured choices for broad exposure to Asian markets; it remains on the Wealth 150 list of our favourite funds across the major sectors.