Long-term culture key to company's advantage
Comment of the Day

June 14 2012

Commentary by David Fuller

Long-term culture key to company's advantage

This is an excellent profile of Hugh Young, Head of Asia Pacific at Aberdeen Asset Management (will require subscription registration, PDF also provided), by Pauline Skypala of the Financial Times. Here is the opening:
Seven of the companies in the top 10 holdings of Aberdeen's Asia Pacific Equity Fund have been in the portfolio for more than 10 years. Some have been there for more than 15 years, says Hugh Young, who heads up Aberdeen Asset Management's Asia operation and is also group head of equities.

He reckons portfolio turnover is about 15 per cent a year, "and the bulk of that will be topping and tailing the holding".

This does not mean Singapore-based Mr Young and his team are sitting around twiddling their thumbs all day. "We spend our lives seeing the companies and just keeping in touch with them, visiting their plants, attending their AGMs."

Going to AGMs is a relatively unusual pastime among fund managers. Mr Young had attended two in the week prior to our meeting. "It's something we feel is quite important - showing you are a shareholder."

Portfolio managers will also be occupied with issues such as takeovers, "where either we just say, 'thank you very much', or we resist, co-operate with other managers". Looking for new companies is another activity, although Mr Young warns against too much focus on this. "The danger in our business is you spend so much time looking for new companies you don't spend enough time with what you actually own."

This approach to fund management could be labelled old-fashioned: holding stocks for the long term based on conviction (Aberdeen owns 20 per cent of some companies) has become relatively rare in the modern benchmark-driven fund industry, where annual portfolio turnover rates of 100 per cent or more are common.

Putting in the time and effort to visit companies is also seen by some as unnecessary in these days of copious data and fast computers able to analyse the numbers and newsflow. Why invest in travel and shoe leather rather than PhDs and algorithms?

Aberdeen believes its equity process, developed in Asia in the early 1990s and adopted on a group-wide basis in 2002, gives it a performance edge.

"Our last really poor year was 2007," says Mr Young. Poor years are inevitable from time to time, he adds. "That's the only thing we can guarantee: poor years relative to benchmarks, and poor years where we lose people money, because markets don't always go up.

David Fuller's view As an investor in several of Aberdeen's Asian Investment Trusts since 2003, I can remember Hugh Young's "poor year" relative to benchmarks in 2007. He became very defensive around mid-year and received some criticism for the temporary underperformance. Needless to say it proved highly prescient, enabling Aberdeen to outperform during the crash and also in the subsequent recovery.

As a macro (top down) investor, I remain a fan of Hugh Young's micro (bottom up) due diligence and low turnover which keeps costs down. Aberdeen's funds are listed in the Chart Library.

Back to top