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Friday, January 17, 2014

Aberdeen Funds in Malaysia..Are They "Iron" Clad Investments?

Note: I am NOT a fund agent. Some folks are asking whether I am. I have unit trust stakes in three different fund houses: Kenanga, Hwang and AmBank (see Aboi's portfolio). How to be agent for all three at once? I am also NOT associated with Fundsupermart. Even If I refer you, I will only get a 1% sales token discount that expires in three months. Because I don't buy that often. Only 4 times in the last 3 years that benefit is of little use to me. Even If I do so, I only save RM60 per RM6000 invested. RM60? That's hardly part time income. Sell nasi lemak and water bottle can give me more. Hence my articles on mutual funds are unbiased and objective.

Aberdeen Asset Management PLC is an international investment management group, managing assets for both institutions and private investors from offices around the world. Its head office is in Aberdeen, Scotland. Aberdeen Asset Management the largest listed fund manager in Europe, managing $200 billion with 2200 employees. The company operates mainly in the United Kingdom but has a growing presence worldwide, particularly Asia, Oceania and the Americas, with over 2,200 staff, across 33 offices in 26 countries. Its headquarters is in the city of Aberdeen, where Group functions including legal, group information and human resources are located, and has its major investment desks in London, Philadelphia and Singapore.

I first heard about this group when I attended the Fundsupermart 2014 flagship event last weekend in Penang: Unit Trust Investment Fair: What & Where To Invest In 2014 and gave me an impressive initial impression. So I started digging more information: Aberdeen's presence is seen on every four corners of the world. Client profile (obtained from 2013 Annual Report): UK (30%), Europe excluding UK (27%), Middle East and Africa (7%), Asia (13%), Americas; US & South America (23%). As you can see, Aberdeen operates on a global scale.

Not long ago (don't know exactly when) they "buka kedai" here in Kuala Lumpur, our financial capital with a regional office and has $5.2billion (RM 17 billion) worth of assets invested in Malaysia as of October 2013. Aberdeen is the first foreign fund manager to have been awarded a domestic asset management licence in Malaysia. The group launched two funds in early 2013: Aberdeen Islamic Malaysia Equity Fund & Aberdeen Islamic World Equity Fund. Both are not one year old yet, as such fund performance is not available. Sounds like a risky venture but I don't go and wager money without a solid hand in the first place. Here's what I found:

Start with the group's overall performance via share price. The company is a constituent of the FTSE 100 Index in the London Stock Exchange (4th largest exchange in the world, China/Shanghai index is no.6 in the world, Malaysia somewhere down there in the 'sungai'). Anyway, From Yahoo Finance:

Now let's drill down to more details of its performance.
From 2013 Aberdeen Annual Report:

Not happy? I have more. From Reuters:
With respect to its relatively stable PE ratio, the stock price and growth w.r.t earnings is not overblown (unlike the days of the U.S Tech bubble). At that kind of yield in the developed countries, dividends are extremely good.
Going back to PE ratio. See the growth rates here, it justifies the growing stock price->No MAGIC. Company has ZERO debts. Liquidity is there (current ratio is high), this is also reflected in the interest coverage. 
Profitability ratios are rock solid. In the mid 20s to mid 30s. And so is management effectiveness in generating returns to shareholders and indirectly fund holders.
With sufficient data above, this is not a joker's group nor is it run by some clueless folks. Now what? Since the funds are not even one year old I can't look at their performance. Thus I have to drill to their top current holdings and investment strategies (accurate as of October 2013).

Aberdeen Islamic Malaysia Equity Fund
Aeon Co (7.8%), Axiata Grp (6.3%), United Plantations (6.2%), Oriental Holdings (5.9%), Tasek Corporation (5.5%), Lafarge Malaysia (5.5%), United Malacca (5.5%), Digi (5.5%), POS Malaysia (5.0%), Nestle Malaysia (5.0%). Total of 58.2%. There's a lot of weight in consumer goods and services but almost none in Oil & Gas.
-Portfolio consists of companies that are market leaders in their respective areas with competitive advantages (monopolistic or oligopolistic with big market share).
-These holdings have good dividend payouts (~50% payout ratio) and have solid ROE (~15%) range.
-What impress me the most here is that they made over 200 visits to Malaysian main board companies in 2012 to do their selection process (I don't think they would "cock" in front of 400 over people in the hall).

Aberdeen Islamic World Equity Fund
Johnson & Johnson (3.9%), Novartis (3.9%), Vodafone Group (3.4%), Samsung Electronics (3.0%), ENI (3.0%), CVS Caremark Corp (3.0%), Nestle (2.9%), TSMC (2.9%), Tenaris (2.9%), EOG Resources (2.9%). Total of 31.8%. Again weights on consumer staples. Also in healthcare.
-Again I see the portfolio consist of global leaders in their own industry with a franchise that spans globally and have recurring revenue and strong IP (intellectual property).
-Invested in companies located around the world to improve investor's risk-return profile. Meaning if one part of the world under performs, another side will pick up the slack.
-Most importantly the fund does not prefer to invest in China-beng companies which I am totally in favour of. I want to see a portfolio of only good corporate governed companies.

Because both funds invest in resilient sectors in industry leaders (blue chips), more on sustainable growth rather than rapid expansion backed by solid balance sheets, risk is mainly on the medium side. Plus they don't trade as often much like Warren's Berkshire. It's a safe fund management group that I see.

Investment Strategies 
->I cut them short, list is by order from most important to the least
1. Treatment of minority shareholders (you and me) equal to major shareholders (founding family / conglomerate).
2. Remember that companies are about people (human capital development) not assets.
3. Balance sheet strength is critical (adequate cash flow and what it does with its cash).
4. Understand what you're buying (don't need to know how chips works but what they are used for for example)
5. Be wary of over ambition (over expansion or go outside of core area of expertise).
6. Think long term (adopts buy and hold strategy much like me).
7. Benchmarks are measuring devices not portfolio construction tools. (active divergence from benchmark a.k.a stock picker instead of following what some other fund houses buy)
8. Take advantage of irrational behaviour (buy on bad news or at cheaper valuation like I do).
9. Do your own research.
10. Focus on industries in which it is possible to have a sustainable competitive advantage.
This list came from Hugh Young (Aberdeen's Global Head of Equities who specializes in Asian equities).

My frequent readers would know that I would fall back to my usual mutual fund selection process which is the following:
#1 Avoid choosing big sized popular funds! - Both funds are just RM10 million in size.
#2 Compare fund expenses! - TER at 1.5% for Malaysia and 1.75% for World is nicely priced
#3 Information on the fund manager! - as listed above under Investment Strategies and more here: Hugh Young
#4 Good funds don't advertise. - indeed unlike you know laa refer to my old article
#5 Avoid the usual past performance > riskiness of fund > manager's rep (some don't) > fund expenses > popularity of fund.  Look from the opposite direction and do your filtering from there. - I just did

Being an Islamic fund there are certain limitations. Shariah-Compliant funds are prohibited from investing in companies which derives income from the sales of alcohol, pork products, pornography, gambling, military equipment or weapons. However the world is a big place, many sectors available to invest. Otherwise it is better to ride camels.

I am less keen on their Malaysia fund namely for two reasons. #1 I already have my Kenanga Growth Fund. #2 No Oil & Gas and too much weight in consumer though I understand their reasoning for Malaysia being a growing country with a young population. Nevertheless I'm upbeat about their World Equity Fund. It is exciting to see a foreign manager handling this because of several reasons (from my old post in April 2011)

"What other local funds in Malaysia that don't work and are hyped?
Equity Greater China class funds: I'm sorry man if you are in it, your agent missed out one thing, the stock market in China does not correlate with its economic growth.
Equity Global class funds: Our local managers don't seemed to have the expertise to tackle overseas market. This applies to all funds houses."

Aberdeen Islamic World Equity Fund solves my two concerns above by not investing in China-beng companies and they have the global team who are experienced. Finally I have a good reason to use my rotting cash. Because risk is medium here, I think 15% per annum returns is pausible. You can read my track record & credibility on choosing funds here (Aboi's Updates For Malaysian Mutual Funds for 1H'2014) or head to Archives for more past articles under the section Mutual Funds in Malaysia.

Happy long weekend folks.

Disclaimer: The reports, analysis and recommendations in this blog are solely my personal views. I do not link to any investment body or company. As such, I will not be responsible of any of your investment decision. Consult your investment adviser or come to your own conclusions before making any investment decision.


Thong said...

Nice analysis n nice points...

Anonymous said...

good homework you did my friend. thanks for sharing

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