- We favour Aberdeen's disciplined and long-term investment approach
- Emerging stock markets have been volatile in recent years, but have generally performed well since February
- The fund remains positioned to benefit from an expanding middle class across the developing world
It has been a turbulent few years for emerging markets investors. Slowing growth in China, weakening currencies, tumbling commodities prices, and political upheaval has dominated the investment landscape and dampened stock market performance. Funds investing in the higher-risk emerging region, including Aberdeen Emerging Markets Equity, have not been immune from the market volatility.
2015 proved a particularly difficult year for the fund. A bias towards some of the weaker-performing markets, including Brazil and Turkey, held back returns. Banks, which accounted for almost a quarter of the fund and were shunned by investors, also had a negative impact.
The emerging markets team at Aberdeen continue to see merit in maintaining significant exposure to financial services businesses (currently 39%, including banks). In their view, companies in the sector should benefit from an expanding middle class who are expected to increase spending on financial products over the long term.
This year investor sentiment has improved to the benefit of emerging stock markets, supported by stabilising commodities prices; the US Federal Reserve's decision to delay its next interest rate rise; and the potential for political regime change in Brazil.
The fund has outperformed the broader emerging markets so far in 2016, alongside a reversal of some of last year's market trends. The Brazilian and Turkish stock markets have performed better, benefiting the fund. Several of the fund's investments in the financials sector have also tended to perform well. The team took the opportunity to take profits from some of the strongest-performing banks, including Brazil's Banco Bradesco and Standard Chartered, which is listed on the UK stock market but has a significant presence in Asia and other emerging markets.
Emerging countries continue to face uncertainties, particularly as China, which has a far-reaching impact on other developing economies, readjusts to a slower rate of growth. The team at Aberdeen is also mindful of the impact of any future interest rate rises in the US, as the vast amounts of US dollar-denominated debt held by companies in the region will become harder to service once rates rise.
Many countries are mindful of these risks, however, and have been implementing reforms that could improve the operating environment for businesses. Furthermore, aside from commodity-related businesses, the team are also encouraged that corporate earnings have on average continued to grow. Stock markets across the region also remain lowly-valued which spells opportunity for long-term investors, in our view.
Our view on this fund
We hold Aberdeen's emerging markets team in high regard and favour their approach of seeking high-quality businesses at reasonable valuations. The process has proven a success over the long term and over the past ten years the fund has grown 162.3%* compared with 67.2% for the average fund in the sector, although please remember past performance is not a guide to future returns.
|Annual percentage growth|
| June 11 -
| June 12 -
| June 13 -
| June 14 -
| June 15 -
|Aberdeen Emerging Markets Equity||-5.2%||20.5%||-7.0%||5.2%||-6.7%|
|IA Global Emerging Markets||-15.0%||15.8%||-5.0%||7.0%||-10.0%|
Past performance is not a guide to future returns.
Source: Lipper IM to *01/06/2016.
To keep the fund a manageable size and protect underlying investors, Aberdeen has sought to restrict inflows into the fund by applying a 2% initial charge. The fund therefore does not currently feature on the Wealth 150 list of our favourite funds across the major sectors.
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