Manager Selection

Due diligence and on the ground research are key to selecting best of breed managers from the expansive universe of products on offer across emerging and frontier markets. The team undertakes over 300 manager meetings each year, with many conducted on the ground.  The goal of their meetings is to identify funds and managers that are likely to outperform relevant benchmarks over the long term. The teams global network of contacts  and Aberdeen Emerging Capital's position as an established manager provides a significant competitive advantage in seeking out new management companies and products.

The due diligence process focuses on qualitative factors rather than the extrapolation of trends in historical performance. Particular attention is paid to the following areas:

  • Experience of the manager in question and its relevance to the fund being managed
  • Alignment of interests between manager and investors
  • Accessibility of management once invested
  • A common sense, repeatable and consistently employed investment process
  • Evidence of extensive due diligence conducted on underlying investments
  • A competitive fee structure and liquidity terms that are consistent with the portfolio
  • Operational integrity
  • Awareness of environmental, social and governance (ESG) issues

Whilst not used to select investments, extensive analysis is undertaken of historic returns relative to relevant benchmarks and competitor funds. The Team has developed an extensive internal database of emerging and frontier market fund performance to assist in this task.

Our average holding period for best of breed managers exceeds 5 years, which is consistent with our long term investment philosophy.

We consider our network of locally based managers to be one of our key strengths.

Asset Allocation

Aberdeen Emerging Capital takes a long term view on asset allocation and, where a high degree of conviction exists, positions its portfolios very differently to mainstream emerging and frontier market benchmark indices.

The asset allocation of our portfolios is driven by a combination of the internal view of the management team and the views of the underlying managers that we work closely with. We believe that, as local experts, those best of breed managers with whom we invest can add significant value in this respect. The internal view is built around a framework of Quality (health of sovereign and corporate balance sheets, corporate governance standards, current account surplus/deficit), Value (trailing and forecast price to earnings ratios, price to book ratios, earnings yield, dividend yield), Growth (GDP growth, corporate earnings growth) and Change (financial, political, social, earnings revisions, price momentum). This framework enables us to compare dissimilar markets using common metrics. The extensive travel undertaken by the team within emerging and frontier markets is a key source of anecdotal information. Finally, we use a quantitative model as a check against our overall positioning. The model ranks countries based on similar factors to those monitored internally.

Discount Opportunities

The acquisition of assets trading at discounts to intrinsic or net asset value is highly consistent with our value philosophy. Aberdeen Emerging Capital’s Investment Team is amongst the most experienced globally in this field.

The discount opportunities that the team targets are predominantly found in closed end funds listed on stock exchanges around the world and where the market price of a fund’s shares is below the net asset value per share. Such misalignments happen for a variety of reasons and the means of unlocking value from such discounts varies significantly depending on the circumstances. Often, volatility in markets leads to enhanced discount opportunities. The team has a long track record of adding value from discounts through both trading and, where necessary, corporate activism. 

Portfolio Construction

Portfolios are constructed to give our clients exposure to what we believe are the most attractive investments in the most attractive markets. They reflect conviction in our best ideas (typically 25-35 holdings, with the top 10 representing 50%+) and are constructed to avoid replication of the same exposure through multiple managers. Historically, on a look through basis, this results in a bias towards smaller and mid-sized companies where pricing inefficiencies tend to be more prevalent. The Team does not employ gearing, use derivatives or hedge currencies. Certain clients permit exposure to individual stocks on an exceptional basis.

Our approach to risk management is client-specific, with investment restrictions and concentration limits set either relative to a benchmark or in absolute terms. 

ESG

Aberdeen Emerging Capital has always had governance as a core element of its investment process. The Company has played an active role historically in pursuing improved corporate governance in the closed end funds in which it invests, often taking the lead or acting alongside co-investors to effect change at either a board or company level.

Of late, we have become increasingly aware of the increasing importance of broader environmental, social and governance issues (ESG) to our underlying clients. Many of the issues are particularly relevant for investors in emerging and frontier markets. To ensure a close alignment with existing and prospective clients, ESG considerations have been actively integrated into our investment process. To date, our work in this area has largely been in increasing awareness of ESG issues with underlying managers. Many now have stated ESG policies where previously they did not. For those managers who still do not have a stated policy, we will continue to encourage them to adopt one.

Aberdeen Emerging Capital itself already adheres to the six United Nations Principles for Responsible Investment (UNPRI), has achieved an ESG3 rating by Mercer and is striving to achieve an ESG2 rating in the near future.

For further information on ESG please click here