Conservatism and caution pay off in the long run

PUBLISHED : Sunday, 28 September, 2008, 12:00am
UPDATED : Sunday, 28 September, 2008, 12:00am

Aberdeen International fund managers

Not so long ago, when the Hang Seng Index was in the stratosphere and Wall Street wizards still reigned supreme, any institution extolling the benefits of a conservative investment strategy was likely to invite reactions ranging from sympathy to scorn.

Now, of course, in the wake of maelstroms, meltdowns, blowouts and bailouts, the 'safe and steady' approach to making money is once again back in fashion, and those content to stick with it are looking rather smart.

'As a house, we are buy-and-hold long-term investors and, as a rule, are very nervous about things we don't understand,' said Alex Boggis, Hong Kong-based director of Aberdeen International Fund Managers.

'We didn't understand these structured types of products so shied away from them, and we don't hold any US, UK or European financials in our global equity funds.'

The firm's approach, he explained, had always been to invest 'with very high conviction'. That meant focusing on the balance sheets of individual companies, and looking for quality management, steady growth and no sudden changes in policy.

'We are very consistent and have a low turnover of favoured holdings, only buying companies that we know are good and have high cash on their balance sheets,' Mr Boggis said. 'In that sense, you could say we are fairly contrarian.'

To promote vigilance and develop expertise, he said, the firm's fund managers had to conduct their own research and analysis. This entailed regular on-site visits to understand the workings and real prospects for every company in which Aberdeen invested.

In terms of internal organisation, everything was run on a team basis, with the result that staff could genuinely cross-cover different sectors and none viewed themselves as 'stars'.

With about US$220billion of assets under management, of which roughly US$45billion is in Asia, mainly in equities ex-Japan, Mr Boggis said the firm had a model which 'works for us'. The aim was to continue building a wholesale business with governments, corporate pension funds and global financial institutions operating in Asia, and to sell funds via distributors.

'We don't really work in the direct retail space,' he said, adding that doing so would involve substantial extra expenditure for offices and headcount. 'Though we like to be hidden in the shadows and simply manage our funds, one criticism we faced from distributors was that our name was not well-known enough, so we are doing a bit more to improve awareness and are slowly spreading our wings.'

Addressing the broader economic situation, he felt it was premature to think that all the bad news was now out in the open. In particular, although the US government had stumped up US$85billion to rescue AIG, one of the big unknowns was what all the other insurance companies were doing.'They don't mark to market, so it will be very interesting to see what their earnings look like this year and into next and what they are going to reveal about themselves,' Mr Boggis said. 'The concern is that they hold more of this toxic debt, and there may be a lot more damage still to come through.'

He said it was hard to hold out hopes for positive growth in the United States. The equity markets might still be full of eternal optimists, but brokers had not written down valuations and had apparently failed to realise there was not much fuel to drive up earnings.

However, the outlook for emerging markets and Asia looked better and, for long-term investors, there were definitely opportunities to pick up some quality stocks at decent prices.Mr Boggis downplayed talk of any 'decoupling' between major markets and economic blocs. But he did suggest now was a good time for Asian economies to take steps to become less export-based and focus more on boosting domestic growth.

'There is still financial interconnectivity, but with the damage that has been done, perhaps other circuits will be formed,' he said. '[The current circumstances] may be a nice catalyst for that.'