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Aberdeen Standard Asia Focus: October 2021 update

Senior Investment Analyst Kate Marshall shares our analysis on the manager, process, culture, cost and performance of the Aberdeen Standard Asia Focus 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 Standard Asia Focus Trust aims to boost long-term investment growth. It mainly invests in small businesses based across Asian markets. This includes both established and less-developed economies such as Thailand, India, Taiwan and Singapore. The trust could help diversify a global investment portfolio, or the Asian part of a portfolio that’s 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.

When investing in closed-ended funds you should be aware the trust can trade at a discount or premium to net asset value (NAV).

Manager

Aberdeen Standard Investments, recently rebranded as ‘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 1980's. We view it positively that he's still a part of the Asia Pacific Equities team, providing both company analysis and mentorship to the wider team.

Young is named as the trust's lead manager, alongside Investment Director Gabriel Sacks. They also have the 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 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 can generate long-term growth, which have been overlooked by others, and hold onto them for many years.

The investment process is similar across the group’s Asian portfolios, though the difference with this trust is its focus on exciting, smaller companies. As an investment trust, the managers can also use gearing (borrowing to invest), which increases potential gains when markets rise and losses when they fall, so any use of gearing increases risk.

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.

Young and the team typically favour businesses that rely on growing consumer wealth, though the trust has at least some exposure to most major sectors. The team invests 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.

Companies are held in the trust for the long term, with an average holding period of almost nine years. This means only a handful of changes are made from year to year. Recently, several new companies have listed on the Indian stock market, and the team has invested in three new businesses, including Indian gaming and chemicals companies.

Investments in the tech sector have also increased over the past few years, and currently make up around 20% of the trust. This includes ecommerce company Momo.com. It’s the largest online retailer in Taiwan and the team thinks it could benefit from domestic consumer growth due to the shift to online from both consumers and retailers. It’s also invested well in logistics, giving it an edge in delivery time and service quality. Its shares have performed strongly so the team has recently sold some and taken profits to reinvest elsewhere, though it remains the trust’s largest investment.

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, and recently 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 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.

Young 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 portfolio, meaning it can invest in any sector.

Cost

The trust's annual ongoing charge is 1.09%. Investors should refer to the latest annual reports and accounts and Key Information Document for details of the risks and charging structure.

If held in a SIPP or ISA the HL platform fee of 0.45% per annum (capped at £200 per annum for a SIPP and £45 for an ISA) 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, though past performance isn't a guide to the future*.

More recently, over the past year, the trust has benefited from investments in companies such as Momo.com, shipping company Pacific Basin Shipping, and Indian engineering and tech firm Cyient. Like all trusts, there were weaker performers too, including electrical equipment company Sunonwealth Electric Machine and Indonesian financial services company Bank OCBC NISP.

A focus on good-quality, financially sound businesses means the trust has typically held up better than the broader market when it’s fallen but lagged a rapidly rising market. There are no guarantees how the trust will perform in future though and investments in small companies based in Asian and emerging markets means performance will be volatile at times.

Annual percentage growth
Sep 16 -
Sep 17
Sep 17 -
Sep 18
Sep 18 -
Sep 19
Sep 19 -
Sep 20
Sep 20 -
Sep 21
Aberdeen Standard Asia Focus Trust 11.5% -0.1% 7.2% -2.5% 42.4%

Past performance isn't a guide to the future. Source: *Lipper IM to 30/09/2021.

Find out more about Aberdeen Standard Asia Focus Trust including charges

View Aberdeen Standard Asia Focus Trust Key Information Document


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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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