They’re undoubtedly big boots to fill. Morningstar data shows that AAS has produced annualised returns of almost 12% since launch in 1995, compared with 4.5% from the MSCI AC Asia ex Japan Small Cap benchmark index. Put another way, £1,000 invested in AAS in 1995 would now be worth almost £22,000, versus £3,400 from the benchmark.
Young “fell into” his career after studying politics at Exeter University, and by the early 1980s was running Asian equities in the UK. In 1985 he moved to Aberdeen to run what is now the abrdn Asia Pacific and Japan Equity fund, and in 1987 launched abrdn’s specialist Asia ex Japan unit trust.
He had several very successful years, followed, inevitably, by an awful one. At that point, Young took radical action: “It seemed a bit daft to manage funds investing in Asia from London, so I moved out to Singapore to set up the office here in 1992.”
With around £200 million under management across various UK funds to look after, he and a lone assistant from London set up Aberdeen’s Asia desk in an old shophouse on the Singapore river.
The gamble paid off. Young and his expanding team were on the ground as regional economic growth gathered momentum and markets such as Korea, Taiwan, the Philippines, Thailand, China and India progressively opened up to foreign investors over the next three decades.
“Operating from London and doing two-week visits, it’s easy to claim you’re an Asia expert,” he observes. “But especially at that time, it was very difficult unless you were living and breathing it – certainly the way we operated, which was and still is a very old-fashioned method involving spending time with the companies and doing a lot of individual due diligence.”
The team’s approach has always been based on diversity, investing on a long-term, bottom-up basis across a spread of countries and sectors, he adds. “We’re looking for good, well-run companies with honest owners and decent employment practices, in industries we believe will grow over the next five or 10 years.” Some holdings have been in the portfolio for 20 or 30 years.
Young made his name as an Asian smaller companies specialist – “smaller companies are just a lot more interesting” – and has remained as lead manager on the small-cap focused abrdn Asia Focus investment trust, after giving up high-profile roles as head of investments at Aberdeen and CEO/chair of Aberdeen Standard Asia.
But he is quick to point out that the whole Asian enterprise, as it has grown, is based on teamwork: “A team-based process was crucial simply to cover the ground, given we had getting on for 20 countries and potentially thousands of companies to invest in.”
The team ethos is simple enough: “We look for honest managers and owners running decent businesses doing the right things, and invest at the best price. Now we have around 40 analysts and managers on the equity team and around 500 employees in total across the region, and the Asia office runs roughly $50 billion,” he adds.
New recruits start as analysts and progress to management as their knowledge of different markets and sectors grows. Brazilian-born Gabriel Sacks is one of many who started and stayed with abrdn, cutting his teeth with the emerging markets (EM) team during and after internship in 2008.
“As a youngster, one of the great things about abrdn was how much exposure to major EM companies I got, and how much room to grow,” he comments. “Hugh has instilled a really collaborative, supportive way of working, and in an industry with a bad reputation for competition and hierarchy.”
Sacks spent a decade in London on the EM desk, working closely with Young and the Asia team, followed in 2018 by five years in the Singapore office itself.
“With around 70% of our emerging market portfolios in Asia, I became very aware of the shift in the global centre of gravity towards the east, so it was important to spend some time on the ground,” he explains. He covered mainly small caps, but also had input into other Asian and EM portfolios.
Sacks is returning to London to take AAS’s reins. While this is an exciting move for him, he is at pains to stress that it’s still basically all about the team. “Hugh became a star manager because he was a pioneer in Asia and was very successful there, but he himself would say it’s always been very much a collaborative approach,” he says.
Nor does he see himself as ‘taking over’ when Young leaves at Christmas. “I’d love to think I’m irreplaceable, but in reality there would be a large, experienced team to pick up things where I left off, including my co-managers Flavia Cheong and Xin-Yao Ng.”
Nonetheless, there has been a lot of succession planning, and Sacks has been working closely with Young to refresh the AAS portfolio over the past five years: changing the name, trimming the number of holdings, weeding out some legacy stocks and introducing new ideas to drive performance in the future (some of which have since done extremely well).
Sacks, like his predecessor, is fired up by the potential of smaller companies: “It’s an opportunity to find some real gems that even other Asian fund managers haven’t really heard much about,” he enthuses.
He’s keen to play forward-looking themes for AAS, including Asia’s extremely strong technology supply chain, the emergent green theme, and the growth of the Asian middle class: “Globally, of the next billion people to join the middle class, almost 90% is expected to come from Asia, which is a great tailwind for well-managed companies in areas such as consumer goods and financial services.”
But there are no changes planned for the fundamentals on which abrdn Asia Focus is run, says Sacks. “Hugh has always said to keep things simple: understand what the business is, how it’s run and what the growth trajectory is, and then don’t overpay for it.”
Of course, that is often easier said than done, but the abrdn Asia Focus team is thriving on a wealth of innovative ideas, robust discussion and peer review, in a part of the Asian market that has seen great outperformance and real long-term growth.
Risk factors you should consider prior to investing:
The value of investments, and the income from them, can go down as well as up and investors may get back less than the amount invested.
- Past performance is not a guide to future results.
- Investment in the Company may not be appropriate for investors who plan to withdraw their money within 5 years.
- The Company may borrow to finance further investment (gearing). The use of gearing is likely to lead to volatility in the Net Asset Value (NAV) meaning that any movement in the value of the company’s assets will result in a magnified movement in the NAV.
- The Company may accumulate investment positions which represent more than normal trading volumes which may make it difficult to realise investments and may lead to volatility in the market price of the Company’s shares.
- The Company may charge expenses to capital which may erode the capital value of the investment.
- The Company invests in smaller companies which are likely to carry a higher degree of risk than larger companies.
- Movements in exchange rates will impact on both the level of income received and the capital value of your investment.
- There is no guarantee that the market price of the Company’s shares will fully reflect their underlying Net Asset Value.
- As with all stock exchange investments the value of the Company’s shares purchased will immediately fall by the difference between the buying and selling prices, the bid-offer spread. If trading volumes fall, the bid-offer spread can widen.
- The Company invests in emerging markets which tend to be more volatile than mature markets and the value of your investment could move sharply up or down.
- Specialist funds which invest in small markets or sectors of industry are likely to be more volatile than more diversified trusts.
- Yields are estimated figures and may fluctuate, there are no guarantees that future dividends will match or exceed historic dividends and certain investors may be subject to further tax on dividends
Other important information:
Issued by abrdn Investments Limited, registered in England and Wales (740118) at 280 Bishopsgate, London EC2M 4AG. abrdn Investments Limited, registered in Scotland (No. 108419), 10 Queen’s Terrace, Aberdeen AB10 1XL. Both companies are authorised and regulated by the Financial Conduct Authority in the UK.