- The fund has been through a tough patch of performance
- A lack of investments in Chinese internet businesses hasn't helped
- The team is one of the most experienced in this area of the market
The Emerging Markets Team at Aberdeen has been around for decades. They've built a lot of knowledge and experience investing in these markets, and we view this as an advantage.
Their Emerging Markets Equity Fund has been through a tough couple of years though. It's not performed as well as the broader emerging stock market. Past performance isn't a guide to the future.
We recently met Devan Kaloo – who leads the team – to talk about the fund's performance and help assess if there's potential for improvement. The team has taken steps to turn things around and improve their investment process. Investment decisions and changes to the fund should now be made at a quicker pace, for example.
There are no guarantees what impact these changes will have. But we're pleased the team is willing to learn from the past and try to improve what they do. We like the fact the core of their process is the same. They continue to look for companies in good financial health, run by trustworthy management teams with a long-term outlook.
We think the fund has the potential to perform well over the long run, but it doesn't currently feature on the Wealth 150+ list of our favourite funds. This is because Aberdeen want to keep the fund a manageable size and have applied a 2% initial charge to invest in it.
The shares of companies in the technology sector have performed strongly over the past few years. This includes some of China's biggest internet companies, such as Alibaba and Baidu.
The team at Aberdeen have generally avoided these businesses. They prefer companies run by management teams with a longer track record. They're also concerned the Chinese government could interfere with these companies, which wouldn't be in the best interests of shareholders. This means the fund has missed out on some of the gains in this area of the market.
A focus on consumer goods companies, which haven't performed quite so well, also hasn't helped. But over the longer term they could benefit from rising wealth and increased consumer spending across the higher-risk emerging markets.
Performance has been good over the long run. Over the past ten years the fund has grown 133.0%* compared with 94.5% for the FTSE Emerging Index. This isn’t a guide to future performance though.
Aberdeen Emerging Markets Equity - ten year performance
Past performance is not a guide to the future. Source: Lipper IM to 30/06/2018.
|Annual percentage growth|
|June 2013 -
|June 2014 -
|June 2015 -
|June 2016 -
|June 2017 -
|Aberdeen Emerging Markets Equity||-1.7%||-0.5%||10.8%||22.7%||-5.6%|
Past performance is not a guide to the future. Source: *Lipper IM to 30/06/2018.
How has the fund changed?
The team only invest in companies they're happy to hold for the long term. But they'll make changes to the fund when they find a better investment opportunity. They also review companies that haven't made it into the fund before, if they think something's changed for the better.
They recently looked at the technology sector again and added an investment in Tencent. They met the management team several times and are comfortable the business is being run in a way that could benefit all shareholders. Tencent makes a lot of cash, and its size and strength makes it difficult for competitors to take business away from it. It's a leader in China's gaming market, and its social media network, WeChat, is doing well.
They've also added to some existing investments. This includes Taiwan Semicondutor, which makes components for electrical devices, such as smartphones and computers. They expect demand for semiconductors to rise, driven by a greater need for high-powered computers.
The team has also taken some profits from the shares of companies that have performed well. This includes Hindustan Unilever, which is based in India and part of consumer goods company Unilever, and AIA Group, an insurance and financial services firm based in Hong Kong.