Changing its name won’t improve the investment performance at Aberdeen Asian Smaller Companies Investment Trust, but rejigging the fund management team and the portfolio might.
As of yesterday, the £486 million investment trust is known as Aberdeen Standard Asia Focus, a far simpler moniker. More importantly, the day-to-day investment decisions will be in the hands of Hugh Young, the Singapore-based fund manager who almost single-handedly built the reputation of his employer, Standard Life Aberdeen, as an expert in the emerging markets.
In fairness, Mr Young has been involved in the investment process at the trust since its launch 23 years ago but as a part of a team effort, and it is illustrative of the difficulties it has been facing that he has rolled up his sleeves to take full personal control.
Aberdeen Standard Asia was established in 1995 and its strategy is to invest for the long term in smaller listed companies in the Asia Pacific region, excluding Japan, with a maximum market value of about $1.5 billion. It invests across every business sector and in companies in a wide range of locations, from Indonesia and Malaysia to Australia and New Zealand.
It is one of numerous investment trusts that offer investors exposure to emerging markets, which can offer exciting growth opportunities but also can have more than their fair share of accompanying political and economic turbulence.
As part of a series of changes detailed yesterday, the first thing that Mr Young will do is cut the number of the trust’s holdings, from about 80 to 60. About 30 of these will be seen as core investments, higher than is the case at the moment.
The management fee is being cut from 1 per cent to 0.96 per cent and in future will be based on the trust’s market value rather than the net value of its assets, meaning that the manager’s interests are much more closely tied to performance.
Aberdeen Standard Asia’s results for the year to the end of July, also published yesterday, were not brilliant, but neither were they abysmal, as it turned around a very difficult first half. Indeed, judged on the second half alone, it beat its benchmark index by 6.9 per cent. Nevertheless, over the full year, the 4.6 per cent improvement in its net asset value is lower than the 6.6 per cent returned by the MSCI Asia Pacific ex Japan small cap index.
Worryingly for investors, the trust’s shares trade at a sizeable discount to its net assets, 14.8 per cent at the end of the year, up from 10.9 per cent at the same point the previous year. Unlike some investment trusts, it has no formal policy for dealing with the discount, although it regularly buys back its shares to help to lift the value.
There are some things that the trust cannot control: political or economic problems in any of its chosen markets, for example, or the wider sentiment of investors towards emerging markets. Both of these went against it last year, including setbacks in Indonesia and Sri Lanka and a sharp deterioration in market confidence exacerbated by the strength of the American economy. US-China tensions have damaged local confidence, but this has been more pronounced at larger companies beyond the scope of Aberdeen Standard Asia’s remit.
With what it can control, it is doing all the right things. Reducing its holdings will concentrate minds, albeit making it potentially more exposed to a company-specific issue, and Mr Young has already acquired some new positions.
The shares, up 9p at 969p yesterday, trade at a rather costly 26.5 times earnings and yield about 1.75 per cent. Recent weakness makes them interesting.
ADVICE Buy
WHY Intelligent improvement plan in place, overseen by one of the world’s most highly rated fund managers
Burford Capital
Burford Capital doesn’t tend to crow about its successes, but there was a rare exception this year when a case it is backing against the Argentinian government got the go-ahead for a hearing in an American court. If successful, Burford’s slice of the compensation would run into a price-moving figure in the hundreds of millions of dollars. Otherwise, it has quietly got on with the business of being an almost relentless growth stock.
Burford Capital was set up in 2009 by Christopher Bogart, a technology investor and the former general counsel at Time Warner who is still chief executive, and Jonathan Molot, a law professor. It listed that year on the Alternative Investment Market, where it remains, for 100p a share.
It invests in commercial disputes, mainly in the United States, and predominantly backs plaintiffs. If successful, it lands a share of the awards, but walks away empty-handed if the case goes against it. It provides funding directly to law firms, which choose their cases to finance. It manages private funds of legal cases for a fee and collects unpaid compensation, again for a fee.
Business growth has been spectacular. Having started with only $130 million to invest, Burford Capital’s most recently disclosed assets stood at $1.64 billion. Pre-tax profits, $1.85 million during the 15 months to December 2010, have increased to $264.7 million for last year and revenues have jumped from an initial $7.4 million to $341.2 million.
The shares peaked at £20.45 in August, but have come back more than 25 per cent since then, most of that since the beginning of October — so it was clearly a big victim of last month’s market sell-off. They closed down 72p at £15 yesterday.
Should it move to the main market, Burford even now would be jostling for a position in the FTSE 100, but it seems to have no desire to do so. It doesn’t need the additional dealing liquidity, nor the higher listing costs.
The fall in Burford’s shares feels highly overdone. They trade for barely 15 times earnings, although the yield of 0.57 per cent is tiny and is the only reason that they are not a stone-cold “buy”.
ADVICE Hold
WHY Growth business that should keep on going, but a very meagre yield
