Size of Aberdeen EM funds raises concerns

Multi-managers are split on the implications of major outflows from Aberdeen’s emerging markets funds in the second quarter of 2013.

Close to £1bn was withdrawn from the fund range led by head of global emerging markets Devan Kaloo, according to the group’s latest interim management statement, published last week.

It follows capacity management measures put in place by Aberdeen on the £3.4bn Emerging Markets fund and two Luxembourg-based funds.

Article continues after advert

Aberdeen chief executive Martin Gilbert said no such action had yet been taken on Hugh Young’s behemoth Asian equity funds, but Mark Harris, head of City Financial’s multi-manager range, voiced concerns over the the star Asian equity manager’s funds.

“As much as Hugh Young is a very good fund manager, the point is the weight of assets looks like it has driven his funds to have less volatility against their relative benchmarks,” Mr Harris said. “It means the funds look closer to the benchmark, albeit with more downside protection.”

Richard Philbin, chief investment officer at Harwood Capital, said he was more concerned with the management of cashflow within the funds rather than their specific capacities.

“Performance after capacity management measures are brought in tends to suffer because it becomes almost a closed-ended vehicle, as no new cash is coming in,” he said.

“If I was running those funds I would be looking very closely at how to manage flows from now on. It is much easier running a growing fund than a shrinking one because you can get into liquidity issues.”

Devan Kaloo’s three main funds – the Aberdeen Emerging Markets fund and the Luxembourg-based Emerging Markets Equity and Emerging Markets Smaller Companies funds – all ranked in the top quartile of the IMA Global Emerging Markets sector based on five-year performance to July 30, according to FE Analytics.

But in the past six months the two large-cap funds have lost more than 7 per cent, slipping to the third quartile. However, the smaller companies fund was still in the top 10 performers in this period.

Gary Potter, co-head of multi-manager at F&C Investments, said the emerging markets and Asia teams at Aberdeen were “extremely competent” and had been able to grow capacity because of their investments in high-quality, liquid companies.

But he added: “However good a ship’s captain is, the bigger the boat the harder it is to turn it around when needed.”

Aberdeen’s interim statement said the emerging markets outflows were in line with expectations given the 2 per cent front-end charge added to the funds in February and declining investor sentiment towards the asset class.

Multi-managers bemoan lack of options

Fund buyers are still struggling to find viable alternatives to Aberdeen and First State emerging markets funds months after the last round of capacity management measures.

City Financial’s Mark Harris said he has found one option but is still conducting research before he invests, while F&C multi-manager Gary Potter said his shortlist of Asian and emerging markets funds was the shortest it had ever been.