ASI Emerging Markets Equity - changes lead to a pickup in performance
Kate Marshall | Tue 03 September 2019
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- We view the team behind this fund as one of the most experienced in this area of the market
- Performance has recently picked up after a weaker period
- We think the fund still has good long-term prospects
Our view
We think Aberdeen is home to a high-calibre team of emerging markets investors. They have a good long-term track record of investing across this part of the world.
Aberdeen merged with Standard Life two years ago, and the team took this as an opportunity to reassess their investment process and see if there was any room for improvement. They've since made a few changes. For example, fund managers and analysts now mainly focus on specific sectors, rather than trying to cover the entire market or broader geographies. It provides each analyst with specialist knowledge of a particular area.
The core of their process remains the same and we view this as a good thing. But we think these recent, incremental changes have helped to reinvigorate the team and sharpen their focus. We'll continue to monitor any further changes and the impact they may have on the team or fund.
It's also encouraging to see a recent improvement in the fund's performance and the team's stock-picking, according to our analysis, after a few years of weaker performance. This is over a short timeframe though and past performance isn't a guide to future returns.
We think the fund has the potential to perform well over the long run, though it doesn't currently feature on the Wealth 50 list of our favourite funds. This is because Aberdeen wants to keep the fund a manageable size, which the managers think is in the best interests of existing investors, and has applied a 2% initial charge to invest in it.
Performance update
It's been a good year for the fund. Over the past 12 months it's grown 13.0%* compared with 7.7% for the broader emerging stock market. Past performance isn't a guide to future returns, and investing in emerging markets is higher risk.
| Annual percentage growth | |||||
|---|---|---|---|---|---|
| Jul 14 -
Jul 15 |
Jul 15 -
Jul 16 |
Jul 16 -
Jul 17 |
Jul 17 -
Jul 18 |
Jul 18 -
Jul 19 |
|
| ASI Emerging Markets Equity | -5.0% | 21.1% | 17.5% | -4.2% | 13.0% |
| FTSE Emerging | -3.1% | 16.8% | 22.4% | 5.7% | 7.7% |
Past performance is not a guide to the future. Source: *Lipper IM to 31/07/2019
Investments in China and Hong Kong were key contributors to performance. The team's increased the fund's overall exposure to China over the past couple of years, particularly China A-shares (the shares of mainland China-based companies). They're now easier for foreign investors to buy and sell than they've been in the past. They tend to be domestically focused, so they could be a great way to take advantage of growing consumption in China.
An investment in Sands China, a resort and casino operator in Macau, was also recently added. The team thinks the company will benefit from Macau's transformation into a leisure and tourist destination, supported by the growth of China's middle class and increased spending from tourists.
Exposure to financials companies also helped returns, including insurance businesses Ping An Insurance and AIA Group. 35% of the fund is currently invested in the financials sector. In the team's view these businesses could benefit from rising wealth across the emerging markets.
Is the US-China trade war a concern?
The team at Aberdeen thinks the US-China trade war could be one of the biggest issues for developing economies over the coming years. But at the same time, they don’t think it'll stop great companies from prospering, growing, and continuing to make money.
They've therefore focused on companies they think are the strongest within their particular area of the market. They think this gives them the best chance of remaining successful, whatever the outcome of the trade war or other political issues.
Elsewhere, it looks increasingly likely the US Federal Reserve will keep interest rates lower for longer, and even cut them again. This could benefit some emerging markets companies as it could help keep costs down for those that previously borrowed money in US dollars.