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Aberdeen Asia Focus: September 2020 update

Senior Investment Analyst Kate Marshall shares our analysis on the manager, process, culture, cost and performance of the Aberdeen Asia Focus Investment Trust.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

  • This trust has the support of a team with one of the longest records of investing in Asia
  • The team is spearheaded by Hugh Young, a highly influential Asian equities investor
  • We like their long-term focus, but willingness to be flexible in the hunt for the best opportunities

How it fits in a portfolio

Aberdeen Asia Focus Investment Trust aims to boost long-term growth. It mainly invests in smaller businesses based across a wide range of Asian markets, including both established and less-developed economies such as Thailand, India, Taiwan and Singapore. The trust could help diversify a global portfolio, or the Asian part of a portfolio that is focused on larger businesses. A combination of younger, smaller businesses with exposure to emerging markets makes the trust a higher-risk option. Periods of volatility should be expected and a long-term investment horizon is essential.

Manager

Aberdeen Standard Investments is home to one of the most experienced teams investing in Asian companies. Hugh Young is Head of Asia Pacific and was instrumental in setting up the group's Asian equities strategy in the late 1980's. We view it positively that he's still a part of the Asia Pacific Equities team to this day.

Young is named as the trust's lead manager. He isn't a one man band though, and the trust also has input from other team members, who are collaborative in their investment approach. Over time Young has helped to build a strong team of analysts and portfolio managers around him, and they provide vital support, contributing research and stock ideas. 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 excellent access to companies, and insight into what's going on across the region.

Process

Young and his 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 those that generate fairly steady rates of growth, which 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, and they can do this regularly as they’re based throughout Asia. They also like to engage with companies on environmental, social and governance issues, which could lead to better outcomes for both investors and society over the long run.

Young and the team typically favour businesses that rely on growing consumer wealth, but they aim for the trust to have at least some exposure to most major sectors. The team doesn't want to put investors' eggs all in one basket, so they aim to invest in a spread of companies from across different sectors and economies. 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. Young believes financial strength is particularly important when it comes to smaller companies, as this could help see them through times of crisis.

Recent changes to the trust include the removal of India's City Union Bank, as Young thinks it no longer has as much growth potential. Part of the sales proceeds were used to add to an investment in Ujjivan Financial Services, also based in India. The manager believes it offers a more promising outlook given its earlier stage of development and ambitious management team.

Young is confident about the longer-term trends and opportunities that will shape Asia's growth, some of which have boomed during the coronavirus pandemic, including the growing use of e-commerce and technology. Other long-term trends include the need for more and better healthcare and infrastructure. He continues to invest in companies he thinks will benefit.

The manager also has the flexibility to use gearing (borrowing to invest), which increases risk as it can increase gains when markets rise, and losses when they fall. He recently reduced the level of gearing to around 10% of the trust, reflecting his slightly more cautious outlook. While he's optimistic about Asia's long-term prospects, he is more cautious in the near-term due to the uncertain recovery following the coronavirus outbreak.

Culture

Hugh Young was one of the UK's first investors to build a range of Asian funds. The group has remained committed to investing in Asia ever since and we think this dedication is admirable.

Aberdeen merged with Standard Life in 2017 to become Aberdeen Standard Investments. 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 since the merger and encouraged they're willing to learn and keep improving what they do. We'll continue to keep an eye on the impact on performance and the team.

The broader team is responsible for a range of Asian and emerging markets funds and investment trusts. 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.

Cost

The trust's annual ongoing charge is 1.16%. Investors should refer to the latest annual reports and accounts and Key Investor Information for details of the risks and charging structure.

If held in a SIPP or ISA the HL platform fee of 0.45% (capped at £200 for a SIPP and £45 for an ISA) per annum also applies. Our platform fee doesn’t apply if held in a Fund and Share account.

Performance

The trust's performance has been excellent since launch in 1995*. It's performance is measured against both a broader Asian index and an Asian small cap index – the trust has outperformed both over the long run. Past performance isn't a guide to the future.

Performance hasn't been quite as strong as the broader index in recent years. This is partly because the share prices of smaller businesses haven't done as well as larger ones. In particular, many investors have favoured some of Asia's largest tech businesses, and they have driven much of the recent market returns.

This is a part of the market the trust naturally won't invest in, given its smaller companies focus, so it's missed out on these returns. That said, if the performance of these companies reverses, or smaller companies more broadly outperform, the trust could benefit. In fact, Young thinks smaller businesses now look better value than larger firms, and sees plenty of opportunity in this part of the market. There are no guarantees though.

More recently, an investment in Taiwan’s Momo.com performed particularly well. The e-commerce retailer has done well as online shopping picked up during the coronavirus pandemic. Young has sold part of this holding in order to lock-in some profits, but it still remains the trust's largest position.

Annual percentage growth
July 15 -
July 16
July 16 -
July 17
July 17 -
July 18
July 18 -
July 19
July 19 -
July 20
Aberdeen Asia Focus Investment Trust 19.4% 16.2% 0.4% 11.4% -13.2%
FTSE Asia Pacific ex Japan 18.8% 23.8% 5.9% 5.5% 1.9%

Past performance is not a guide to the future. Source: *Lipper IM to 31/07/2020.

Find out more about Aberdeen Asia Focus Investment Trust including charges

Aberdeen Asia Focus Investment Trust Key investor information


Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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