Trustnet Magazine Issue 10 September 2015

IN FOCUS TRUST FUND SCHRODER UK DYNAMIC SMALLER COMPANIES ABERDEEN NEW DAWN INVESTMENT TRUST This fund has underperformed recently, but its genuine small-cap bias means volatility is to be expected, while its long-term figures remain compelling With discounts in the IT Asia Pacific ex Japan sector widening to some of their largest levels in years, it may be an opportune time to pick up this long-term outperformer S I -50% Jan 15 Jan 14 Jan 13 Jan 12 Jan 11 Jan 10 Jan 09 Jan 08 -100% MANAGER: Hugh Young PREMIUM/DISCOUNT: -13.6% LAUNCHED: 12/05/1989 ONGOING ANNUAL EXPENSES: 1.09% Source: FE Analytics 10 300% 200% 100% 0% -100% Jan 15 0% 400% Jan 13 50% MSCI AC Asia Pacific ex Japan (232.56%) 500% Jan 11 100% Aberdeen New Dawn Investment Trust PLC (474.32%) IT Asia Pacific ex Japan Equities (248.90%) 600% Jan 09 150% 700% Jan 07 FTSE Small Cap (ex IT) (74.36%) 200% “Aberdeen New Dawn is one of the longest running Asian equity trusts, with a history spanning more than 25 years. Aberdeen’s unconstrained approach and quality focus has historically delivered strong returns for the long-term investor and, in our view, should continue to do so in spite of short-term market volatility,” Tan said. The trust offers exposure to mainly consumer-facing sectors and while Young is wary of Chinese equities due to a lack of quality in the region, he is overweight the likes of India, Singapore and South Korea. Given its approach and current exposure, Tan says Aberdeen New Dawn is well-placed to take advantage of the changing dynamics in the developing word. PERFORMANCE OF TRUST VS SECTOR AND INDEX SINCE 2000 Jan 05 Schroder UK Dynamic Smaller Companies (261.62%) IA UK Smaller Companies (127.93%) 250% The Aberdeen philosophy is to invest in high-quality growth companies that have clear visibility of earnings and that aren’t dependent on the macroeconomic backdrop. Its portfolios are also severely underweig ht mainland China. As a result, Charles Tan, analyst at Cantor Fitzgerald, thinks Aberdeen New Dawn Investment Trust’s current discount of 13.26 per cent is too wide and recommends that investors buy it. It has struggled recently due to its style and aversion to Chinese equities (it is underperforming over one, three and five years). However, given the type of companies Young invests in, Tan expects the trust to top the sector over the long term just as it has done over the past 15 years. Jan 03 300% t is often the case that in order to make the highest returns, you need to buy while others are fearful – however, it is a brave person who buys into a plummeting market, with further falls always a distinct possibility. Therefore it would take someone with nerves of steel to invest in Asia now, with the MSCI AC Asia Pacific ex Japan index down some 25 per cent since April and many experts predicting further volatility as a result of the deteriorating Chinese economy. However, the higher the price you pay for an investment, the bigger the risk and with the recent crisis pushing discounts on Asia Pacific trusts on to historically wide levels, now may be an opportune time to buy in. The average IT Asia Pacific ex Japan trust, for example, is now trading on an 8.3 per cent discount while approximately 85 per cent of the sector’s members are on wider discounts than their three-year average. This tide of selling has affected some of the best long-term performers such as those managed by Hugh Young and his team at Aberdeen. Jan 01 his long term track record is extremely good.” “Investors who favour his strategy, and are prepared to put up with the additional volatility, may wish to consider adding a position following the weakness.” Small cap stocks have done particularly well this year, with the FTSE Small Cap index significantly outperforming both the FTSE All Share and the FTSE 100. In addition, despite higher levels of volatility, small-cap funds tend to deliver higher returns over the long term. Schroder UK Dynamic Smaller Companies is a solid example of this as, despite its recent troubles, it is still in the top decile over Marriage’s tenure. PERFORMANCE OF FUND VS SECTOR AND INDEX OVER MANAGER TENURE Jan 07 MANAGERS: Paul Marriage & John Warren FUND SIZE: £531.5m LAUNCHED: 02/08/1996 OCF: 0.91% Parmenion, told FE Trustnet in July that the fund’s genuine bias towards small caps is one of its many appealing traits and that investors should not be deterred by its poor performance last year. “The fund has had a difficult period but Paul Marriage is one of the few true small-cap managers,” she explained. “Many small-cap managers have sizeable weightings in mid caps which have held up better, but these are not true small-cap funds. Although the fund has suffered a setback in the last year, this doesn’t make Marriage a bad manager. Indeed, he has shown to demonstrate good stockpicking skills, and while his strategy comes with higher volatility, Jan 06 chroder UK Dynamic Smaller Companies certainly divides the crowd. The fund has frequently delivered stellar returns under the tenure of FE Alpha Managers Paul Marriage and John Warren, placing in the top decile during the tumultuous market of 2011 and the rally of 2012. Between September 2012 and the beginning of 2014, however, the small cap fund saw huge inflows and grew from £180m to £1.32bn. This may have contributed to its fall in to the second quartile in 2013, but it wasn’t until the following year – after Schroders took the decision to hard-close the fund – that it dropped into the bottom decile. However, as it was being removed from many platforms’ buy-lists, investors also began to pull their money out. The subsequent fall in assets under management led Schroders to re-open the fund 10 months later, but some investors remained sceptical following its significant fall from grace. Meera Hearnden, senior investment manager at Source: FE Analytics trustnetdirect.com trustnetdirect.com 11

Trustnet Magazine Issue 10 September 2015 | Page 12