Aberdeen Standard lumps investors with costs of merger

Aberdeen Standard Investments investors are being forced to pay the costs of a team merger that will see three Aberdeen Asset Management funds revamped under Harry Nimmo’s small-cap team.

In a letter to investors, seen by Portfolio Adviser, Alan Hawthorn, head of investor services, said re-structuring of the portfolios would incur a cost between 0.7% and 1.4%, depending on market conditions.

The £85.85m Aberdeen UK Smaller Companies Equity, £34.17m UK Mid-Cap Equity and £51.10m European Smaller Companies Equity funds will shift over in the transition.

Aberdeen small-caps performance

Source: FE Analytics

But AJ Bell head of active portfolios Ryan Hughes said “the huge group that is Aberdeen Standard Investments” should foot the bill. “The original investors in the Aberdeen funds didn’t ask for this. It’s not a vote so it’s being forced upon them,” said Hughes. “Markets are very volatile right now so it’s one of those things where they’re going to have to tread very carefully to make sure they transition in the right way.”

He also expected a merger of the funds with larger SLI strategies could be on the cards. “Why would you continue to run these funds at a very small size?” he said.

High bid-offer spreads in smaller caps

7IM senior investment manager Peter Sleep said Aberdeen Standard Investments is going to reap the benefit of lower costs so it was logical it pays the cost of the transition, which could take up to 12 weeks and starts on 5 December 2018.

Aberdeen Standard did not state whether there would be job losses under the transition, but said there had been a 25% increase in headcount since the asset managers merged. “The bringing together of the two teams has significantly expanded our common research capability but does allow us to differentiate how that research is applied in practice,” Hawthorn told investors.

Sleep was surprised costs could reach up to 1.4% but attributed this to the high bid-offer spread on many small and mid-cap stocks. The UK equity funds have ongoing charges figures of 1.60% while the European equities fund charges 1.62%.

The transition will take approximately 12 weeks, beginning on 5 December. Dealing commissions and stamp duty would also be part of the costs.

SLI team’s growth and momentum bias

Aberdeen investors were told the SLI team followed a similar fundamental company research approach to small and mid-caps. However, the SLI team focuses on high quality companies with attractive growth and momentum characteristics, the letter said.

Hughes said there would be a slight change in investment style from the value bias in the Aberdeen team. “That’s borne out in the performance numbers where you can see the growth, momentum bias Standard Life have always had.” However, he noted performance between the two teams during the market sell-off over the last six weeks had been broadly similar.

Darius McDermott, managing director of Chelsea Financial Services, said he was confident the move was in the best interests of investors. In all but one of the last five calendar years, the SLI smaller companies funds have collectively outperformed the Aberdeen products with the largest differential in 2015 when SLI delivered 17.6% compared with 5.3% at Aberdeen.

In an ideal world, Aberdeen Standard Investments would take on costs themselves, McDermott said. However, he added that whenever there is a fund manager change costs are incurred by the fund when positioning is inevitably changed.

Aberdeen Standard Investments did not respond to a request for comment.

Harry Nimmo performance

Source: FE Analytics