Report Release Date: 1 Mar 2010
Analyst: Jackie Beard
Executive Summary
People: A well-resourced and strong team of managers and analysts gives this fund a research advantage.
Parent: Aberdeen has been on the acquisition trail again, with the additions of Deutsche Asset Management, and more recently Credit Suisse Asset Management, which can be problematic when integrating staff from companies with different cultures and investment philosophies.
Process: The house philosophy in looking for quality companies trading at attractive valuations is applied consistently here.
Performance: The fund’s long-term record is outstanding, but investors can expect short term bouts of underperformance.
Price: This fund's TER is 10 basis points higher than the median fund in the category.
Morningstar Opinion
We think there are many reasons for investors to like Aberdeen Emerging Markets.
The team running this fund is one of them. The emergingmarkets team comprises over 30 members, based in London and Singapore, and they share a mix of experience. Aberdeen is well known for training analysts through the ranks to instill in them the Aberdeen process, and in Asia and the emerging markets this has worked particularly well. Much of this is due to the mentoring work done by Hugh Young and Peter Hames in Singapore, and more latterly Chou Chong, so it has come as a blow that Hames has declared his intention to leave the firm later on in 2010. But we don’t think investors will suffer: The team is well established and Young and Chong remain in situ.
Indeed the process is integral to the firm and the team members are well trained in the Aberdeen way. They search for quality on the basis of clarity in a company’s business strategy; they also consider strength of balance sheet, transparency of earnings, and commitment to shareholder value. Their focus on quality and valuation stops them from chasing momentum and keeps turnover in the fund low. They often find themselves buying when others are selling and this can lead to a portfolio that differs notably from peers, both in composition and performance.
We can illustrate this by looking at the fund’s China weighting: The team has a long-held underweight here as they believe Chinese companies’ valuations simply don’t meet their criteria. In Nov. 2007, the team went from a zero weight to around 7% on the market’s correction as stocks became too cheap, but within a year this was down to less than 3% as valuations improved. This compares with an average category exposure of over 14% in Nov. 2007 and over 9% in Nov. 2008.
The process has led to excellent results here and the fund ranks in the top decile over three and five years to the end of Jan. 2010. We didn’t expect the fund to hold up as well as peers in 2009 as the market was led by momentum, so it was surprising to see it finish the year over 4.6 percentage points ahead of its category peer. This was driven by three factors: overweights in financials and consumer discretionary and the very strong performance of Astra International. The team’s valuation discipline is also good at limiting losses in down markets and 2008 was testament to this: Although the fund lost over 43%, this was some 10.8 percentage points less than its category peers. This discipline can hold it back, though, and investors should be prepared for returns to look out of kilter at times; in 2007, their avoidance of China held them back as Chinese stocks surged.
For those who can take the rough with the smooth, we think Aberdeen Emerging Markets is a solid choice for the long term. The fund retains its Superior rating.
*Returns are in USD terms.
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