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Alternatives to the Aberdeen Asia Pacific fund

The number of proven funds in the IMA Asia Pacific ex Japan sector is shrinking by the month.

By Joshua Ausden, Editor, FE Trustnet Follow
Tuesday April 30, 2013


FE Alpha Manager Hugh Young’s Asia Pacific funds are the latest high-profile portfolios facing soft-closure in the coming months.

The likes of First State Asia Pacific are already closed to new money, and it was revealed last summer that the First State Asia Pacific Leaders fund was also moving to slow inflows in anticipation of a soft-closure.

In the firm’s latest trading statement, Aberdeen revealed it has witnessed net inflows of £4.4bn in the last six months, which includes the five crown-rated Aberdeen Asia Pacific fund and four crown-rated Aberdeen Global Asia Pacific Equity fund.

Chief executive of Aberdeen Martin Gilbert confirmed that the group is likely to go down the same path for its Asia Pacific range as it has done for its emerging markets range, which has seen a number of soft-closures in recent months.

In March, the flagship Aberdeen Emerging Markets fund upped its initial charge to 2 per cent, in an attempt to stem demand.

In anticipation of a soft-closure, FE Trustnet highlights three funds that could act as alternatives to the Aberdeen Asia Pacific portfolio:


Edinburgh Dragon Trust

Rowan Dartington’s Tim Cockerill believes investors may have to go out of their comfort zone to find a viable alternative to the Aberdeen fund.

"Investors have got a big problem – not just in the Asia Pacific sector, but in the emerging markets sector," he said.

"When it comes to this kind of fund, I want something that has experienced guys in charge, that I don’t have to worry about, which is what Aberdeen and First State offer."

"It’s difficult to see where you can now go if you want something like this."

ALT_TAG Cockerill says investment trusts run by one of the two groups are good options. He says the obvious closed-ended alternative is one of the trusts Young (pictured) runs.

The £666m Edinburgh Dragon Trust has similar holdings to Aberdeen Asia Pacific, but its smaller size means that it is a little more nimble, allowing it to hold a greater number of small and mid cap companies.

The fact it is closed-ended means there is no chance of the portfolio being adversely impacted by inflows, and so it is likely to remain more flexible for the foreseeable future.

Both the fund and trust's top-two holdings are the same – Samsung and Overseas Chinese Banking Group – and there is significant overlap through the rest of the portfolio’s top-10.

Edinburgh Dragon IT is slightly more concentrated and, unlike Aberdeen Asia Pacific, gets its exposure to India via the Aberdeen Global Indian Equity fund.

In spite of the overlap, lower charges and effective gearing have helped the trust outpace its open-ended counterpart significantly over one, three, five and 10 years.

Performance of fund vs trust and index over 10yrs


Name 1yr returns (%)
3yr returns (%) 5yr returns (%) 10yr returns (%)
Edinburgh Dragon Trust 23.35 41.44 87.58 562.36
Aberdeen Asia Pacific 15.66 26.54 62.56 432.14
MSCI AC Asia Pacific ex Japan 12.34 16.32 12.96 232.34

Source: FE Analytics

The trust has easily beaten its MSCI Asia Pacific ex Japan benchmark over all of these periods.

Edinburgh Dragon Trust has a better record than the Aberdeen Asia Pacific fund during falling markets, meaning that investors can expect a similar attention to downside protection, which has come to characterise Young’s style.

The trust has an ongoing charges figure (OCF) of 1.27 per cent and does not charge a performance fee. By contrast, Aberdeen Asia Pacific has an OCF of 1.84 per cent. It is on a discount of 5.7 per cent and is currently 10 per cent geared.

Young and his team also run the Aberdeen New Dawn IT – another emerging Asia trust, which is on a discount of 5.9 per cent.


It has similar holdings to both Aberdeen Asia Pacific and the Edinburgh Dragon Trust, though is more concentrated than both.


Pacific Assets IT

"Pacific Assets IT is another one, which has been run by First State for a number of years," said Cockerill.

"It’s on a slightly higher discount [then the Edinburgh Dragon Trust], which is important. If these trusts go on to premiums, they may as well be soft-closed because you’re paying so much more for them."

According to the AIC, the Pacific Assets IT is on a discount of 8.4 per cent.

The £191m trust is headed up by FE Alpha Manager David Gait and Stuart Paul. It has significantly underperformed Young’s trusts and fund over five and 10 years, but comes out on top over one and three years.

Performance of trust, fund and index over 3yrs


ALT_TAG

Source: FE Analytics

As with all of First State’s portfolios, the managers target quality, solid companies that have sustainable business models over the long-term. It has been consistently less volatile than the Edinburgh Dragon Trust in recent years.

Gait and Paul's biggest regional weighting overall is to India, at 19 per cent. This compares with 12.8 per cent for Edinburgh Dragon Trust.

The pair are significantly underweight China, with just 2.8 per cent invested directly in the country.

The Pacific Assets IT has an OCF of 1.27 per cent and charges a performance fee of 15 per cent every year. It currently has no gearing.



Schroder Asian Alpha Plus

FE Research believes Matthew Dobbs’ five crown-rated fund has the core principles required when picking a portfolio of this type, but points out that the manager’s high-conviction style means it is more susceptible to big losses during falling markets.

"The fund benefits from the established analyst team settled in the Asia Pacific, which provides easy access to companies’ managers thanks to Schroders’ strong reputation," the team said.

"The fact that businesses are scrutinised from a corporate governance angle is encouraging, as is the in-house assessment of how they treat shareholders. This fund has the ability to diversify a portfolio and would sit well in a core/satellite strategy, therefore."

"However, the fund holds fewer companies than its benchmark that offer more predictable and stable earnings, which may penalise it if markets fall again."

The Schroder Asian Alpha Plus fund has beaten its Aberdeen rival since its launch in November 2007, but has been more volatile along the way.

Performance of funds vs sector and index since Nov 2007

ALT_TAG

Source: FE Analytics

It uses a different benchmark – the MSCI Far East ex Japan index – which it has also beaten over the period.

Dobbs' biggest regional position by far is Hong Kong, which has a 26 per cent weighting. This is generally an indirect play on China, which only has an 8 per cent weighting.

Schroder Asian Alpha Plus requires a minimum investment of £1,000 and has an OCF of 1.7 per cent. It is £492m in size.



 
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Scott85 Apr 30th, 2013 at 05:16 PM

"[Pacific Assets IT] has significantly underperformed Young’s trusts and fund over five and 10 years, but comes out on top over one and three years."

First State only won the management of the trust in June/July 2010 so talking about the longer term performance (when managed by F&C) isn't quite fair! I do like the look of this trust, especially given Gait's longer term record on the (now closed) First State Asia Pacific Sustainability fund which is run on a smilar basis.

Reply
dlp6666 Apr 30th, 2013 at 02:18 PM

How about Aberdeen Asia Pacific and Japan?

I assume that's not one of the funds threatened by soft closure, and a touch of Japan might even spice things up!

Reply
Robert Apr 30th, 2013 at 09:59 AM

I would be interested in your view of income funds in this sector which also offer accumulation units. The Henderson Asian Dividend Income fund has a TER of just 1.28% and a current yield of 5.4%. It has also easily outperformed the Schroder fund in terms of growth over all but 3 years, and even then it is very close.

Reply
 

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