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Aberdeen sticks to trusted ways as dark skies loom
[TOKYO] Hugh Young has no illusions about how tough this year will be for global investors and his firm, Aberdeen Asset Management Plc.
The Singapore-based managing director of Aberdeen predicts the world economy will struggle in 2016 amid a growing realization that central bank stimulus has failed. Weak global growth has already battered some of Aberdeen's biggest holdings, including Rio Tinto Plc and PetroChina Co, while clients have pulled more than US$30 billion from the firm's funds over the past two quarters.
In times like these, you might expect Young to batten down the hatches, ditch his firm's money-losing investments and pile into stocks more sheltered from the economic downturn. Instead, it's business as usual for the manager of more than US$400 billion, whose focus on finding "great" companies at cheap prices and holding them for the long term has endured over a more than three-decade career spanning the Black Monday crash of 1987, the Asian financial crisis of the late 1990s and the global recession seven years ago.
"I guess I've been around so long that one's never surprised," Young said in a phone interview. "For equities, we just concentrate on whether the companies are in decent businesses, and if they're in troubled businesses, whether they are strong enough to survive." Young says Aberdeen is sticking with big holdings like Rio Tinto, PetroChina and Keppel Corp, a Singapore-based builder of oil rigs. While his funds have adjusted the size of existing positions this year, Young says they've only added one new stock. He's happy with what the firm owns and will buy more if Aberdeen, an emerging-markets specialist, attracts client inflows.
"The issue is, of course, whether you have money flooding in or not," said Young, a co-manager of the US$6.6 billion Aberdeen Emerging Markets Fund, which has dropped 4.1 per cent this year to outperform 87 per cent of peers tracked by Bloomberg.
Aberdeen reported US$12.7 billion of net outflows during the final three months of 2016, following US$17.8 billion of withdrawals in the previous quarter, as investors pulled money out of developing countries. Shares in emerging markets have been among the biggest casualties of a selloff that erased US$5.5 trillion from global equities this year, while Aberdeen's London-listed shares have dropped about 15 per cent.
For Young, a major reason for the stock-market rout is an investor "awakening" to the idea that governments have spent years pumping money into the financial system without improving the health of the global economy.
"Governments have spent five or six years, however long it is, pouring money into problems, " he said. "It has been the wrong policy." Whether or not that's the true cause of the selloff, Young says he's sticking with a company-specific approach to investment strategy. He puts more weight on a firm's long-term business model and corporate governance than the impact of cyclical factors.
While that approach has worked for Aberdeen over the long term - the flagship emerging markets fund has outperformed 99 per cent of US-domiciled peers tracked by Bloomberg since its inception in May 2007 - it can be painful when markets become more focused on short-term problems.
Rio Tinto is a prime example. The commodities producer has dropped 38 per cent in London trading over the past year - extending a plunge from a 2008 high to 67 per cent - and plans to slash its dividend amid tumbling prices for iron ore, aluminum and copper.
Young says he's sticking with the stock because Aberdeen expects iron ore prices to double from current levels and Rio Tinto is a low-cost producer that generates enough cash to survive the slump in prices. The company's shares jumped 4 per cent in Sydney on Wednesday morning.
"We wish we hadn't owned it for the last couple of years, but we did," said Young, a 57-year-old British man whose self-deprecating sense of humour projects an air of calm. "If we thought that it was at risk of going under, I guess we would sell at whatever price. But we don't think it will."