The manager of the Aberdeen Standard Asia Focus trust has 'dipped his toes' into Vietnam for the first time.
Young became the named manager of the trust last year, in a shift from the previous team-based responsibility, and the veteran investor has been shaking up the £350 million portfolio, cutting the number of holdings and moving to a more concentrated approach.
Performance has improved, with the trust's shares up 7.2% over the 12 months to the end of September and the nav rising 5.4%, ahead of a 4.2% return from the MSCI Asia Pacific ex-Japan index.
Young said he had endured a ‘long and trying’ year at the helm of the trust in annual results last week covering the 12 months to the end of July.
‘It was a tumultuous year for Asian equities,’ he said. ‘Notably, the push and pull of global monetary policy and trade relations held sway over all stock markets. Volatile currencies and oil prices further dampened the overall mood. The ongoing trade conflict compounded persistent worries about China's economic health.’
Young sold 20 stocks over the year, including ‘notable exits’ from Indonesian cement company Solusi Bangun (SMCB.JK) and its Malaysian peer Tasek (TKCS.KL), which were both subjects of takeover bids.
‘We accepted the offer from Solusi Bangun’s parent and sold Tasek after its share price bounced,’ said Young.
He also sold out of companies that ‘faced a tougher outlook for growth or earnings’, such as Sri Lankan lender Commercial Bank of Ceylon (COMB.CM) and Thai Coca-Cola bottler Haad Thip (HTC.BK).
Clearout funds shopping spree
Although Young has been focused on streamlining the portfolio he has ventured into new territories, investing the fund in Vietnam for the first time.
In the hunt for new ideas, Young said he has spent time ‘gaining comfort with Vietnam’, its growing importance in the global supply chain and the government’s willingness to open up to capital markets.
‘As a result, we finally dipped our toes and introduced two Vietnamese names that met our quality and value criteria,’ he said.
The first buy was software outsourcing group FPT Corporation (FPT.HM), which has a ‘growing list of multinational clients’ and owns a mobile telecoms unit, an education business, and stakes in electronics retailers.
‘Management is highly professional, the stock’s valuation compelling, and the growth prospects for all the group’s distinct businesses pretty promising,’ said Young.
He also added Ho Chi Minh City-focused developer Nam Long (NLG.HM), which operates in the affordable housing sector.
‘It has a decent land bank and a robust pipeline of projects,’ said Young. ‘Its partnerships with well-known Japanese developers and the backing of Singapore’s Keppel Group are also reassuring from a governance perspective.’
He also made two new investments outside of Vietnam, firstly taking a stake in South Korea’s Park Systems (140860.KQ), which develops atomic force microscopes.
Young said this is a ‘nascent technology that could have broad industrial application in sectors such as chip-making and biotechnology’.
‘The company’s financials are sound, despite significant upfront sales and distribution costs, which in our view provides a solid base for earnings to grow when orders start to roll in,’ he said.
The trust also invested in Indian property developer Prestige Estates (PREG.NS) despite historically avoiding the Indian real estate sector. Young said his view on the sector had evolved and regulatory reform was ‘likely to encourage industry consolidation’ benefiting Prestige, which has a strong balance sheet.
‘The Bangalore-based company has a good reputation and solid execution capabilities,’ he said. ‘While the bulk of its projects are in residential, it has also built up a decent property investment portfolio.’
The difficult conditions in Asia are not expected to ease anytime soon and Young is expecting markets to be hit by ‘bouts of volatility’ in the near term.
‘An end to the US-China trade spat seems as elusive as ever, while slowing growth continues to cast doubt over the outlook for commodities and some regional economies,’ he said.
Throwing political risks and monetary policy into the mix, Young said ‘some may rush for the exits’ but he is confident about the ‘quality of the underlying portfolio’ and the companies he holds.
‘Their strong balance sheets and domestic orientation given them the wherewithal to face the present uncertainty,’ he said.
‘Most of the management teams we back have also been here before and their experience is invaluable in helping them to position their businesses to prosper when the cycle turns.’