Sticking with good quality, steady companies

Taking a cautious approach has paid dividends for Aberdeen Asset Management’s emerging markets team. While rivals were forced to overhaul portfolios when the global financial problems took hold, it had no need to start panic buying.

“We are always fairly conservative, which is why we did not race to change our portfolio,” explains Joanne Irvine, head of emerging markets ex-Asia. “Our focus has always been on investing in good quality, steady companies.”

The aim of the £493.7m Aberdeen Emerging Markets fund, which was launched in July 2003, is to provide long-term capital growth by investing in emerging stock markets or companies with significant activities in such areas.

Benchmarked against the MSCI Emerging Markets index – and with AA-ratings from both obsr and Standard & Poor’s – it is run on a purely bottom-up, stock-picking basis without any top-down overlays.

“We analyse companies and only buy those that are good quality and good value,” she explains. “However, there is also a sense check. For instance, South African retailers may be really cheap but we do not want 100 per cent of the fund in them.”

Putting together a well-diversified portfolio is important – as is taking a genuine team approach taken to fund management. More than 30 emerging market experts are involved in shaping the portfolio and making decisions about where to invest.

This means that selecting a stock for inclusion in the portfolio can be a lengthy process. Sometimes it may take as many as five visits before the team can be confident about investing in a particular name. Extensive research notes are generated on the back of each meeting which are used as a source of reference for the future.

“It is important to get to know a company and become comfortable with the management,” says Ms Irvine. “We usually like to see its rivals to really understand where the company is stronger or has a competitive advantage.”

Only those that either have a particular niche, a strong competitive advantage, or have built up a brand will stand a chance of being included. Its balance sheet, any risks involved and the management’s reputation are also taken into consideration.

“We buy companies for the long term and the weighting given to it will largely depend on our conviction at that point in time,” she explains. “When such a decision is made we want everyone on the team to be behind the new stock.”

The number of stocks held ranges between 50-60. The top-10 largest positions, which account for almost 35 per cent of assets under management, include Samsung Electronics, Petroleo Brasileiro, China Mobile and Banco Bradesco.

Although the fund’s approach is bottom up, the overriding theme influencing the team’s decisions is the belief that emerging markets are attractive.