Gabriel Sacks is Co-Manager of Aberdeen Asia Focus
What would you think if I were to say resilience is one of the most important attributes an investor can possess? More specifically, what would you think if I were to suggest it can be particularly useful in a market such as Asia?
You might infer that investing must be a dispiriting exercise, not least in the region in which my colleagues and I specialise. You might even conclude that it must be a matter of somehow triumphing in the face of overwhelming odds.
Thankfully, the point I want to make is rather more upbeat. I believe resilience is essential because successful investing is usually rooted in taking a long-term view and accepting setbacks are inevitable but eminently surmountable.
I thought about this recently when contemplating one of my sporadic forays into the world of skiing. It goes without saying that most skiers, whatever their level of proficiency, suffer some painful tests of character.
Hermann Maier offers one of the most remarkable illustrations. The Austrian multiple champion amassed 54 World Cup race victories in the 1990s and 2000s, but his stellar career was not without incident.
In 2001, while riding his motorbike home after a training session, Maier collided with a car. His right leg was so badly injured that doctors considered amputation. Extensive reconstructive surgery was eventually carried out.
Hardly anyone expected a return to action, let alone a full-blown comeback, yet Maier re-entered top-level competition a little over a year later. Within two weeks, sensationally, he added to his tally of World Cup wins. In light of his apparent indestructibility, fans dubbed him “The Herminator”.
Investing very rarely serves up such extremes, of course. Neither the lows nor the highs are likely to be so pronounced. But there are bound to be ups and downs, with the latter occasionally testing patience and resolve.
For example, imagine seeking out the brightest opportunities among Asia’s smaller companies. This is likely to mean venturing into relatively unfamiliar territory – not just in terms of region but in terms of asset class – for most investors.
Some might be immediately deterred by the fact that Asia is home to numerous emerging markets (EMs). Wherever they may be, EMs are often perceived as inherently risky and unstable.
The paucity of information on smaller companies could also be a source of discouragement. A small-cap business in Asia is likely to be covered by just a handful of analysts – or very possibly by none at all.
Fortunately, these initial hurdles are not difficult to overcome. They barely amount to taking a gentle tumble on the nursery slopes.
The truth is that EMs are nowadays seldom defined by instability. A key lesson of the past few years is that volatility and uncertainty can be found pretty much everywhere – not just in EMs but in their developed counterparts – and the consequences tend to be short-lived.
The analysis gap also need not be a problem. Investment teams such as ours are able to draw on our own in-depth research – including first-hand, on-the-ground insights – to learn more about the attractions of companies at the lower end of the market-capitalisation spectrum.
Naturally, there are instances when we might dig pretty deep before discovering a business’s ostensible appeal fails to withstand ever-closer scrutiny. This can be frustrating.
There are also instances when, for whatever reason, a holding may prove incapable of generating the kind of growth and performance for which we originally hoped. This can be disappointing.
Yet such is the way of investing. Moments of frustration and disappointment are inevitable. Resilience lies in recognising the value of dusting yourself down, ploughing on and learning to live with short-term noise and fleeting dissatisfaction.
Historically, smaller companies have outperformed their larger counterparts over time. This acknowledged trend, which has been evident both in Asia and elsewhere, continues to underpin the investment philosophy that drives abrdn Asia Focus plc.
No strategy is infallible, because markets are themselves imperfect. So is the information that shapes them.
But strategies that are able to benefit from a diligent stock-picking process and sensible but agile portfolio management are likely to succeed over the long run, despite the many twists and turns that punctuate every investment journey. Our own performance record clearly demonstrates as much.
Incidentally, in case you may be wondering, I will spare you the details of my latest skiing exploits. Suffice to say that resilience was once again a useful quality to possess. As The Herminator himself may well have said: “I’ll be back.”
Important information
- 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.
- Emerging markets tend to be more volatile than mature markets and the value of your investment could move sharply up or down.
- 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:
The details contained here are for information purposes only and should not be considered as an offer, investment recommendation, or solicitation to deal in any investments or funds and does not constitute investment research, investment recommendation or investment advice in any jurisdiction. Any data contained herein which is attributed to a third party (“Third Party Data”) is the property of (a) third party supplier(s) (the “Owner”) and is licensed for use with Aberdeen. Third Party Data may not be copied or distributed. Third Party Data is provided “as is” and is not warranted to be accurate, complete or timely. To the extent permitted by applicable law, none of the Owner, Aberdeen, or any other third party (including any third party involved in providing and/or compiling Third Party Data) shall have any liability for Third Party Data or for any use made of Third Party Data. Neither the Owner nor any other third party sponsors, endorses or promotes the fund or product to which Third Party Data relates.
The abrdn Asia Focus plc Key Information Document can be obtained here.
Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London EC2M 4AG. The company is authorised and regulated by the Financial Conduct Authority in the UK.
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