Joanne Irvine, head of GEM ex Asia at Aberdeen Asset Management, said the diversified mining group was introduced to the £3.4bn Aberdeen Emerging Markets Fund and the offshore $13.8bn Aberdeen Global Emerging Markets Equity Fund during the third quarter.
Materials and other cyclical sectors in emerging markets have experienced significant volatility in recent months as investor sentiment wavered with weakening global growth outlooks.
Irvine said the team took advantage of this weakness to buy BHP Billiton. The stock is eligible for the emerging market funds as it derives more than half of its revenues from these regions and is also listed in South Africa.
“We consider BHP as ‘world class’ and we like the long-term focus of their strategy. Their balance sheet is very strong. We also rate the company’s balanced approach in terms of pursuing growth but also delivering strong returns to shareholders in the way of dividends and share buybacks,” she added in an investor update.
BHP Billiton is the world’s largest diversified miner and holds a top five position in almost all commodity groups it operates in, including iron ore, petroleum, base metals, aluminium and coal. Irvine said the company’s well diversified commodity base and the fact it has operations in more than 100 locations across the globe help to protect it from volatility.
The global emerging markets team also increased its overweight to cyclical names during the third quarter. The manager explained that sectors such as consumer staples, which tend to benefit from strong domestic growth in emerging markets have become “a little stretched” from a valuation perspective.
Areas more attuned to global growth like materials and energy, on the other hand, have deviated owing to the persistent concerns over the structural problems of the west.
“While we still believe in the domestic potential of emerging countries and remain overweight sector such as consumer staples, we have taken advantage of the significant volatility in cyclical sectors to top up our existing holdings,” Irvine explained.
The team has also introduced Indonesian fuel distribution business AKR Corporindo to the $2bn Aberdeen Global Emerging Markets Smaller Companies Fund and the $2.4bn Aberdeen Global Asian Smaller Companies Fund.
“The barriers to entry are reasonably high, where AKR has invested in physical storage capacity, and the long-term plan is to expand into retail fuel distribution, but only if subsidies are removed,” Irvine said. “So strong volume growth potential with a logistical competitive advantage.”
