Aberdeen Emerging Markets shown up by small cap version
While the group’s flagship fund has soft-closed, investors can still get access to its highly regarded emerging markets team if they are prepared to move down the capitalisation scale.
By Mark Smith, Senior Reporter, FE Trustnet
Friday July 13, 2012
The five crown-rated Aberdeen Emerging Markets
fund has been one of the most popular and best-performing funds of the last decade but its massive size led to liquidity concerns and it recently soft-closed.
While the success of that fund is well known, the less popular $1.6bn Aberdeen Emerging Markets Smaller Companies portfolio, which is still open to new investors, has performed better than any other Global Emerging Markets fund over three and five years, with returns of 102.67 per cent and 80.63 per cent respectively.
The fund is overlooked by many people who worry that small cap investing is too volatile, especially within a high-risk sector.
However, recent FE Trustnet studies
have shown that small cap funds tend to have a higher Sharpe ratio than their all-cap peers, indicating that they are more attractive on a risk/return basis.
According to our data, the Aberdeen Emerging Markets Smaller Companies fund has been less volatile than the larger, more established Aberdeen Emerging Markets portfolio over three years. The former has an annual score of 15.73 per cent while the latter scores 18.18 per cent.
Performance of funds vs index over 3-yrs
Source: FE Analytics
As a result, the small cap fund has the best Sharpe ratio of any in the sector over three and five years. Over the last 36 months it scored 1.49 while its nearest rival, the soft-closed First State Global Emerging Markets
, scored 1.07.
"Investors automatically assume that smaller companies are more volatile than large caps but that isn’t always the case," said Hargreaves Lansdown’s Richard Troue.
"Large caps have been much more heavily traded in the risk-on/risk-off environment we’ve been experiencing and the high volumes lead to increased volatility."
While investing in emerging markets is not for the faint-hearted and only recommended for investors who have a long enough time horizon to tolerate volatility, the Aberdeen Global Emerging Markets team is renowned for its conservative approach.
Devan Kaloo, who heads up the division, has maintained a focus on capital appreciation over chasing opportunities on the upside and this has been the key to the consistency of the fund over the long-term.
Troue commented: "Aberdeen’s focus on quality means that it naturally finds lower-volatility stocks. Small caps have traditionally been seen as blue-sky boom-or-bust investments but the tougher environment is leading fund managers to focus on more financially secure companies."
There are three other alternatives for small cap investing in the Global Emerging Markets sector: JPM Emerging Markets Small Cap
, Somerset Emerging Markets Smaller Cap and Templeton Emerging Markets Smaller Companies.
While none of these have as long a track record as the Aberdeen vehicle, each has recorded top-quartile returns over either one or three years, proving the potential within the asset class.
Another option is the Aberdeen Global Asian Smaller Companies
fund. Data from FE Analytics
shows that it is the top performer in its Asia Pacific ex Japan sector over one, three and five years.
Like the Aberdeen Emerging Markets Smaller Companies fund, it has the most impressive Sharpe ratio in its sector over three and five years.