As I wrote last week, Aberdeen is under pressure to stem inflows into its open-ended GEM vehicles, though it says Hugh Young’s Asia Pacific funds are not a concern – despite flows of £1.4bn into the strategy in Q4 last year. First State too is another name often top of the list when fund pickers talk about looking east.
Both of these companies do field investment trusts – Aberdeen in particular has an impressive range of Asian trusts, while First State has its Scottish Oriental Smaller Companies Trust and Pacific Assets Trust.
RDR considerations
Investment trusts also have their own liquidity concerns, of course, though under the post-RDR regime independent advisers must at least show that they have considered closed-ended options.
According to the AIC, the three best performing investment trust sectors over the past 10 years have been Global Emerging Markets (up 514%), Country Specialist: Asia Pacific (up 483%) and Asia Pacific: Excluding Japan (up 352%).
Not bad, but whilst the Asia Pacific: Excluding Japan category is also the second-top performing sector over five years, and the fourth-best performing sector over one year, up 21%, the Country Specialist: Asia Pacific sector is down 22%, illustrating some of the risks in these markets.
While he has no issue with the First State or Aberdeen vehicles, Stephen Peters, investment analyst, at Charles Stanley, believes they have benefited from a very favourable style wind.
“Investors globally have wanted solid, sustainable GARP-type companies that are not shooting the lights out that maybe look expensive historically, but you are paying out for quality,” he says.
“You want low volatility, and these are the things that Aberdeen and First State have looked for in their stocks for years and for the past five years the investment conditions have been perfect for them.”
An aggressive style
He adds: “The most aggressive style you could have used in emerging markets in that time has been a deep value contrarian style. You would have suffered as an investor because if these companies miss a quarter’s earnings or disappoint in any way, the market really doesn’t want to know. But there is an argument that value strategies and funds that invest in more cyclical names such as miners and industrials will come back and perform well again.”
He picks out Schroders Asia Pacific and JPMorgan Asian as trusts to watch, which have shown signs of improved performance in recent months.
However, that does not mean you should necessarily be selling out of the giants just yet: “The caveat is that we saw exactly the same this time last year in Q1 2012 when there was a big outperformance of risk on stocks, but this soon reversed and lots of them managed to maintain their decent performance and lots of them didn’t.”
