Multi-manager  

Fund Selector: Buy Aberdeen to access Asia

Asia has clearly witnessed a difficult period, with the MSCI Asia ex Japan index down around 20 per cent in sterling terms since April.

The region is not blameless of course, but one could attribute some of this decline to the general stress suffered by western economies, the fear of rate normalisation in the US, and the repatriation of assets. Good domestically focused companies in Asia and the emerging markets haven’t become bad companies, they have just gotten cheaper.

But this dynamic offers little comfort to investors who have to mark to market their valuations on a daily basis. The performance numbers in isolation don’t offer much by way of defence or justification. However, we must at times remind ourselves that what is profitable long term is rarely comfortable short term.

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When buying back into a falling market such as Asia, wishing to participate in its longer-term bullish fundamentals, there is a plethora of investment vehicles at one’s disposal.

One observation in a falling market is that it is important to avoid a fund that is suffering outflows. A vehicle should be deploying new money into a falling or stabilising market, rather than using its funds to meet redemptions.

So that could steer one towards the closed-end universe – where there are 23 Asia Pacific investment trusts to choose from, all with varying degrees of liquidity and costs.

An alternative to this ‘collective’ approach would be to buy shares in Aberdeen Asset Management. Perhaps one could be forgiven for viewing Aberdeen loosely as a ‘fund-of-funds play’ on the market, with the added incentive of participation in the management fees.

The company invests both directly and indirectly into Asia and the emerging markets and its footprint offers a hugely diversified portfolio. This year has been a testing period for the company, with substantial outflows being suffered. But with healthy assets under management north of £300bn, it’s far from a panic scenario.

The company is trading at around a three-year low and offers an attractive yield of roughly 5.5 per cent – a respectable level of compensation at this stage in the cycle. With around 60 per cent of revenues sourced from its emerging markets funds, it is well poised to benefit from a stabilising landscape in Asia and beyond.

In October 2014, 71 per cent of analysts recommended the stock as a ‘buy’, according to Bloomberg. Naturally, just 10 per cent of analysts endorse them today with the share price 30 per cent lower! Perhaps this is not quite as disconcerting as the 72 per cent of analysts who recommended Royal Bank of Scotland as a ‘buy’ in June 2007.

It is proclaimed that Peter Lynch of Fidelity first coined the phrase ‘Growth at Reasonable Price’ (GARP), but I loosely recall Bruce Stout (of Aberdeen) suggesting his approach was more ‘Growth at Scottish Prices’ (GASP). Accessing a recovery in Asia via Aberdeen Asset Management could fall into that category just now.