Aberdeen EM

srcandas

Aberdeen Asset Management insists a 2% charge is needed to prevent popular funds being swamped with new money.

Aberdeen are about to introduce a 2% entry fee to their EM fund. They say it is to limit incoming funds and that the 2% will be added to the fund value and not the Aberdeen bank faults.

Two things strike me as worthy of thought:

1. Is the delay (March/April) in introducing this an attempt to actually get a rapid influx of funds?
   
2. I appreciate investing £15 billion is a responsibility and takes considerable research [ and that fund managers do not have the advantages of private investors being heavily restricted in target investments ] but the EM world is huge. Could there be hidden motives here?

I should say Aberdeen are my favourite funds provider and I am heavily invested in Aberdeen EM Debt and would have been considering moving some to Aberdeen EM in the future. But I'd rather look elsewhere than pay 2% introduction :cool:

ColdIron

To be fair they have been discouraging new investment for a little while and they soft closed it recently. The larger the fund the less agile it becomes. It's a fund I have always liked but do not hold, First State have good equivalents

By Aberdeen EM debt are you referring to the new Aberdeen EM Bonds fund? This is one I have high hopes for

srcandas

ColdIron wrote: »

By Aberdeen EM debt are you referring to the new Aberdeen EM Bonds fund? This is one I have high hopes for

Yup it has done over 14% for the ytd as opposed to 11.5% for the equity. I use it as a downside safety net with Trojan but it has proved to not be a bad upside bet.

But back to restricting funds I believe the EM equity fund has few holdings (62 with 33% in top ten holdings) so I'd have thought plenty of room for development with new money. With so few holdings it is for sure the opposite end of the scale to an index tracker

But c'est la vie I might jump in with a nibble before the 2% is introduced as I think the next 3 years look positive and I'll get my share of all those 2%s for late comers

bowlhead99

I see what you're saying about it being concentrated compared to the index which would have hundreds, and that to me is a good thing because you have a much better chance of researching the hell out of your top holdings and monitoring them when you don't also have a few hundred other companies distracting you.

In terms of why they discourage new investments and why there is probably no hidden motive , think of it this way:

Imagine they have a portfolio with only 10 holdings. We all know it is much more difficult to get a good price when entering or exiting a stock when you are trying to deal in larger chunks than normal market size, so they should be reluctant to take larger chunks than is efficient. But lets say they also have a practical problem that they have invested so much that they own 29.9999% of each of the companies and can't buy a single share without hitting a 30% threshold for having to make an offer for the whole company which they don't want to do. Or they own 49.99999% and don't want to control the voting rights of the company.

So, they are as invested as they want to be, for whatever reason, in their favourite 10 stocks in the market. If I want to come along with more cash and increase their fund size by 10%, they have to buy company 11 on their favourites list. It's not as good as the others, but they have to buy it or just keep the cash in a money market account earning nominal interest. The managers do not want to have to look after 11 holdings then 12 holdings then 13 etc etc until they have the 812 holdings in the MSCI EM index or the 870 holdings in the Vanguard EM tracker... But most fundamentally their investors do not want to have their underlying investments be split 11 ways into 10 good stocks and 1 worse one.

So if the fund is already as big as it needs to be: why let someone else in?

You mentioned they are managing 15bn but they have a whole range of funds available, UK OEICs, Lux SICAVs, Investment Trusts etc managed by their emerging markets team - Russian Equities, EM Infrastructure Equities, Latin American, EM smaller companies, New Thai Investment Trust etc etc etc. So what happens when you keep adding investor after investor and the fund performs well and keeps growing and growing and it all adds up to $50bn. You see something to react to in the market and you want to put at least a percent of the portfolio (and more in some of your funds) into a new hot target.

That's a half billion investment, more than the entire market cap of some potential targets. In $200bn Samsung it's under a percent. In $30bn FEMSA it's closer to 2 percent. As it is, they already have 7.5% of the fund's money in those two companies. Most EM businesses are not that size and the free float of a company may be quite a bit smaller than the total market cap making dealing difficult for hundreds of millions of dollars of purchases or sales.

To me the whole idea of dynamic emerging markets, seeking out new growth and getting great returns in the process, is not well suited to mega funds. A $100m investment trust might be nimbler. Though the management fee would not pay for such a large team so they are generally affiliates of the big managers and as such might end up wanting to buy the same things at the same time.

Clearly investors want exposure to the sector because of its potential and its historic results, but there isn't enough to go around which is why funds soft close to new investors or try to protect existing investors with barriers to entry for new ones.

srcandas

Bowlhead thanks for the extensive input.

Don't get me wrong as I said I am attracted to it. I'm more attracted to it than if it did diversify it's investments.

Perhaps I'd prefer it if they declared it a very specialist equity EM targeted fund. Having minimal holdings it's name rather hides it's very very focused target.

But that still leaves me wondering if the current strategy (the delay in the announced 2%) will not lead to a large input of funds, the very thing they appear not to want - confused of Watford

But I'll play the game. As I said I like Aberdeen: the city, the people, the beer and the investment company - and I'm English through and through

ColdIron

They say it's not their intention to cause a sudden influx of funds but it probably will, maybe with myself included. We have until 15th April

Apparently monthly savers can avoid the 2% by investing with Aberdeen directly

PS great response from bowlhead99

JohnRo

ColdIron wrote: »

Apparently monthly savers can avoid the 2% by investing with Aberdeen directly

Would that not prove impossible though if, like me, the Aberdeen funds are already held as part of a larger portfolio in an ISA?

ColdIron

I don't know, couldn't you buy them unwrapped and then bed and breakfast them at a later date?

JohnRo

Yeah that seems a reasonable compromise. Think I'll just wait and see for the time being though, I don't know at this stage how the 2% surcharge will compare long term with losing tax free advantages.

TCA

!!!!!!, this affects me too. I've not long started monthly contributions via a platform to Aberdeen Global Emerging Markets Smaller Companies Fund. Not sure I fancy losing 2% of my investment straight off each time I buy. And would really prefer to keep everything in one place and not go direct to Aberdeen.

I also agree that it might have the opposite desired effect and funds will flow in mightily before the deadline. I'm tempted to do that myself.

Linton

TCA wrote: »

!!!!!!, this affects me too. I've not long started monthly contributions via a platform to Aberdeen Global Emerging Markets Smaller Companies Fund. Not sure I fancy losing 2% of my investment straight off each time I buy. And would really prefer to keep everything in one place and not go direct to Aberdeen.

I also agree that it might have the opposite desired effect and funds will flow in mightily before the deadline. I'm tempted to do that myself.

The Small Companies fund is a different one to the EM fund imposing the 2% charge, the latter being mainly large companies.

Wrong - shouldnt have looked at the FT report!!