View more on these topics

Asian adventure

Investing in smaller companies can be an exciting, if bumpy, ride, yet it often leads to long-term out-performance. This has been the case not only for the UK, where there are some excellent small-cap fund managers, but also around the globe. Combine the potential of smaller companies with Asia’s fast-growing economies and you have a compelling opportunity.

An interesting way of accessing this is through the Aberdeen Asian smaller companies investment trust. Aberdeen’s expertise in Asian equities is well known. A focus on good quality, resilient businesses has helped navigate the volatile Asian markets exceptionally well over the years. The team, run by Hugh Young, believes share prices reflect the quality of underlying businesses over the long term. It therefore looks to identify the best firms and buy them when the valuation is right.

Aberdeen’s approach is consistent across its range of funds. You do not often find a stock held in just one. For example, the 60 or so smaller companies in this trust will also be found in either its off-shore Asian smaller company unit trust or in the individual country funds Aberdeen manages across the region.

The trust focuses on companies below $750m in size at the time of purchase, high-lighting one of the benefits of the investment trust structure. As there is no money coming in and out of the trust to worry about, Aberdeen can hunt more freely for much smaller companies, which are often more illiquid.

In contrast, its Asian smaller companies unit trust looks at companies below $2.5bn. However, according to Young, the portfolios are fairly similar. Indeed, running the two types of funds is complementary – the discipline of having to buy and sell new holdings as money flows in and out forces the team to reassess whether it should also be holding a company in the investment trust.

The current portfolio trades at a price to earnings ratio of about 13.5 times this year’s earnings. This is above the MSCI Asia Pacific small-cap index, although this is heavily skewed to Australia, where the trust rarely invests. According to Young, this is near the long-term average following a rally in the first few months of 2012.

The positive start to this year has been beneficial for existing holdings of the fund but Young is finding it harder to unearth opportunities as valuations are less attractive than they were. The portfolio currently favours companies exposed to domestic consumption in the region. Consumer businesses make up almost 45 per cent of the portfolio, compared with about 13 per cent of the index. Top 10 holdings include Thai retailer Siam Macro, brewer Multi Bintang and Godrej, a consumer products business.

At a country level, the team has found good opportunities in India, Malaysia, Thailand, and Indonesia, while it is harder to find high quality smaller companies in China, Taiwan and Korea. Ultimately, the decision whether to invest is based on the quality of the companies alone, not location.

When assessing an investment trust, factors other than performance must be considered. For example, the amount of borrowing, or gearing, the trust has. Gearing can add value in a rising market and detract in a falling one. Aberdeen’s approach is prudent and gearing tends to be no more than 10 per cent.

Another issue to bear in mind is that the share price may not accurately reflect the underlying net asset value of the trust. It may be a premium or discount, according to market sentiment. Shares are currently trading marginally above net asset value, meaning they trade at a premium.

Investors looking to purchase may want to monitor this to see if shares fall to a discount prior to buying. Those not wanting to take the additional risk of the share price discount/premium could consider the unit trust instead. Either way, Aberdeen’s Asia team is of the highest calibre and exposure could be an excellent addition to an adventurous portfolio.

Ben Yearsley is investment manager at Hargreaves Lansdown



Aviva’s Moss handed £1.3m exit payout

Outgoing Aviva chief executive Andrew Moss will receive a payout worth almost £1.3m following his decision to quit the provider. Aviva announced Moss’ decision to resign from the post this morning after almost five years as chief executive. Aviva chairman designate John McFarlane becomes executive deputy chairman and from July 1 will be made executive […]

Backing for MPs’ probe into future of social care

The all party Parliamentary local government group has launched an inquiry into the future of social care provision. The inquiry will review how local authorities provide financial support to people who require long-term care and will produce a response to the Government’s social care white paper, expected in May. The group will be supported by […]

Aberdeen’s McKenzie moves to JPMAM in push for fixed income

JP Morgan Asset Management has appointed Charles McKenzie as head of client portfolio management for Europe, Middle East & Africa in the global fixed income team. McKenzie joins from Aber-deen Asset Management where he was head of fixed income for Europe, Middle East & Africa. Prior to this he was responsible for UK fixed income […]

Turner wants flexibility in Euro regulation

FSA chairman Lord Adair Turner has warned that European regulation must comprise the right mix of financial integration and flexibility for national powers. The International Monetary Fund has called for progress towards a pan-eurozone approach to issues such as the orderly wind-up of failed banks, compensation schemes and bank supervision. Speaking at a Central Bank […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm