Recent underperformance at Aberdeen New Dawn (ABD) does not dent our positive view. Aberdeen is known for investing in the highest-quality names and this approach was not rewarded in 2013, when high quality underperformed low quality. The fund was also hurt by its long-standing overweight to India and Southeast Asia, and its underweight to North Asia, especially countries such as China, Korea and Taiwan.
That said, our conviction in the fund's process remains intact. Indeed, the team has been following the same process consistently since its creation by Hugh Young in 1985, giving this fund one of the longest track records under the team's influence. They invest in quality companies that are growing, with the management skill to deal with that growth; they look for competitive business models, strong balance sheets, and high returns on assets and capital. No company is purchased without the team first meeting its management, so the fact that they’re based across Singapore, Sydney, Bangkok, Kuala Lumpur, Hong Kong, and Tokyo is a big advantage.
The team is another reason for our high conviction here. Led by Hugh Young, who himself has more than 25 years of investment experience in Asian equities, it’s a stable team with longevity of both experience and tenure at Aberdeen. The team is based across the region and they all contribute stock ideas. Analysts are hired early in their career and trained comprehensively in the group's approach, which has ensured that Aberdeen’s investment process is applied consistently.
The buy-and-hold process results in a fairly concentrated portfolio, with between 40 and 60 names; turnover tends to be very low, at less than 10% per annum, reinforcing their long-term approach. Country and sector positions are a function of bottom-up analysis, rather than intended bets. Reflecting Aberdeen’s emphasis on quality, the fund tends to be underweight China and Korea, where companies tend to fail the qualitative screens, and overweight Hong Kong and Singapore. It’s usual to see the fund underweight to Australia, too, as the team believes not only are there are better opportunities across Asia, but the Asian consumer is stronger right now than the Australian consumer.
This process has proved its effectiveness over the long term. Since launch to 31 Jan, the fund has outperformed its average Morningstar Asia-Pacific ex-Japan Equity category peer by more than 3 percentage points annualised and that is with risk kept firmly in check. Indeed, despite the use of gearing and a fairly concentrated portfolio, its overall Morningstar Risk rating is just average.
The fee structure is simple, too. There is no performance fee here and overall expenses are favourable when compared with the fund’s category. The fund retains its Gold rating.
