Skip to the content

Aberdeen funds roar back in 2014

19 April 2014

Following a dreadful 2013, the fund manager's Asian and emerging markets funds are back in the top quartile of their respective sectors.

By Thomas McMahon,

News Editor, FE Trustnet

Aberdeen’s flagship emerging market and Asia Pacific funds have charged back to the top quartile of their sectors in 2014 following a dreadful 2013 in which they finished in the bottom quartile, according to data from FE Analytics.

FE Trustnet reported last week that the emerging market and Asia Pacific indices have outperformed the developed world markets, a development unexpected by most analysts.

The Aberdeen funds have outperformed on a relative basis as well, our data shows, helped by a sell-off in the growth-orientated areas and a renewed appetite for defensive stocks.

The £2.3bn Aberdeen Emerging Markets Equity fund and the offshore equivalent Aberdeen Global Emerging Markets Equity are third and fourth in the 77-fund IMA Global Emerging Market sector this year with returns of 1.57 per cent and 1.53 per cent.

Over the same period the average fund in the sector has lost over 2 per cent, while the MSCI Emerging Markets index is down 0.86 per cent.

Performance of funds vs sector and index in 2014

ALT_TAG

Source: FE Analytics

This is in stark contrast to the two funds’ performance in 2013 when both lost roughly 10 per cent, putting them among the worst-performers in the sector and breaking a run of three consecutive years of top quartile performance.

Hugh Young, group head of equities at Aberdeen, says that stock specific issues hurt the company last year as well as negative sentiment towards its preferred stocks.

“Many of the companies and markets in which we’re overweight have rallied in recent weeks having underperformed for much of last year.”

“For instance, India where sentiment has been improving in the run up to the election and Brazil with investors becoming more optimistic about a possible change in government after the October presidential elections.”

“Furthermore our underweight to China has been beneficial, as concerns over the health of the banking sector and a slowing economy have continued to weigh on the stockmarket.”

“However, I should stress that portfolio activity has been minimal. Our long-term holdings which experienced sharp share price falls last year, such as Jardine Strategic and Astra, did not turn into poor businesses overnight in fact they continued to perform as expected and we took the opportunity to top up at cheaper levels.”

“It’s important to look beyond the daily ebb and flow of markets and focus on the fundamentals – company management, balance sheet, business model – which in the end should dictate returns over the long-term."


Globally markets have turned back to defensive stocks following a sustained period of chasing growth, boosting the Aberdeen funds, which focus on the more stable, defensive areas.

Performance of consumer staples vs discretionaries in 2014

ALT_TAG

Source: FE Analytics

Rob Morgan, analyst at Charles Stanley Direct, said: “They did have a poor year last year, primarily because a lot of the companies they invest in were on the consumer staple side in emerging markets and Asia.”


“They have suffered a pull back on valuation concerns – not concerns about quality, but they just got a bit ahead of themselves, therefore we saw deep value sectors, cyclical sectors doing well last year, and they weren’t held much if at all in the Aberdeen funds.”

“This year what we have had in the last couple of months has been that reverse a little bit, so those stable defensives that are the hallmark of the Aberdeen portfolios have come back into focus because of a bit of risk aversion that has been going on.”

“Some people may think they [those stocks] are expensive defensives, but they have been more popular companies this year.”

The sell-off in the markets has focused on the more growth-orientated areas such as technology and the internet.

Funds which had overweighted these areas did particularly well last year in a poor year for the sector, but these have suffered most in the sell-off.

In fact, it is notable that very few of the funds in the sector that were top quartile last year are also top quartile in 2014.

First State Global Emerging Markets, First State Global Emerging Markets Sustainability, Templeton Emerging Markets Smaller Companies and Invesco Perpetual Emerging Countries are the exceptions.

Aberdeen’s Asia Pacific funds have also been boosted by this change of focus in the market.

The £2.1bn Aberdeen Asia Pacific Equity fund and the offshore Aberdeen Global Asia Pacific Equity are thirteenth and twelfth in the IMA Asia Pacific ex Japan sector in 2014 having been seventy-ninth and seventy-eighth out of 84 last year.

Performance of funds vs sector and index since Jan 2013

ALT_TAG

Source: FE Analytics

Aberdeen Asia Pacific & Japan has displayed the same pattern of behaviour, finishing seventh out of eight funds last year and being the top-performing portfolio this year.

The smaller companies portfolios haven’t seen the same comeback, however, illustrating the role that risk-aversion has played in the large-cap funds’ return to form.

Aberdeen Global Emerging Markets Smaller Companies is second quartile this year and was last year while Aberdeen Global Asian Smaller Companies was fourth quartile last year and has ticked up to third quartile in 2014.

They remain the top-performing funds in their respective portfolios over a five year period.

Morgan says that the sluggish performance of the funds last year shouldn’t come as a surprise to investors, as the managers of the funds flagged up the issue.


The performance was to be expected given the funds’ stated aims and objectives and the managers’ refusal to buy cheaper stocks if they don’t match up to their standards of quality.

“To be fair, a number of managers at Aberdeen last year were saying the stocks they hold were quite expensive but they didn’t want to compromise on quality,” he said.

“Hugh Young 18 months ago said markets were expensive, Bruce Stout was saying last year in global equity income stocks he was struggling to find value.”

“But if you are holding that fund for the long term, through the cycle and beyond, then that shouldn’t really matter.”

“If you are trading in and out of value and growth, looking at shorter time frames that might influence your decision.”

“Those Aberdeen funds are core holdings for structural parts of your portfolio. I would be happy to hold their emerging market funds and Asian funds long term.”

ALT_TAG

Editor's Picks

Loading...

Videos from BNY Mellon Investment Management

Loading...

Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.