Significant overweights to Turkey and Brazil have led to the recent underperformance of Aberdeens's $12 billion emerging market equity fund, according to its lead manager Devan Kaloo.
On an investor conference call, Kaloo, who heads up a team responsible for a total of 13 emerging market strategies, said he felt compelled to explain an ‘unusual’ period of underperformance for the fund.
Kaloo said the fund, which was soft-closed earlier this year, was lagging its benchmark by around one percentage point over the past three months, having lost 8.65% over this period.
However, the Euro Stars AA-rated fund manager has said he has made no major changes to the Aberdeen Global - Emerging Markets Equity fund and, in fact, topped up holdings in two Turkish banks.
Explaining the fund's current positioning, Kaloo highlighted two issues:
‘We have had more money, or we have been overweight, in the countries which have seen the biggest sell-off in their currencies, so places like Brazil and Turkey,’ he said.
‘On the flipside to that, we have been underweight to the countries which have controlled currencies or fixed currencies, such as China and Taiwan. So certainly currency weakness has been a major issue for us and has fed through to weaker performance.’
In addition, Kaloo said he had not managed to offset the negative impact of currency weakness with stock selection in the 65-stock portfolio.
‘Here there are a couple of issues, firstly many of the stocks that did very well for us in the first quarter and at the end of 2012, sold off very sharply as people took profits or sold down positions that had done well.’
Financials stocks, which make up 35% of his fund, had been particularly hard hit, Kaloo said.
For example, his holdings in Mexican firm Banorte (2.3%), Brazilian financials firm Bradesco (3.3%) and Turkish bank Akbank (2.1%) were among his poorest performing stocks.
However, Kaloo said the recent underperformance would not force him to make major changes to the portfolio.
‘What have we been doing? Not a lot. We have been topping up positions where value has appeared,’ Kaloo said. ‘We added to our Turkish banks after the protests and the big sell offs.’
This has seen him add to positions in Garanti Bank and Akbank, while also topping up positions in Korean convenience store E-Mart and Russian supermarket chain Magnit.
Kaloo said he had not opted to make any significant position reductions in the fund but had funded these top ups by trimming various holdings.
The Aberdeen Global – Emerging Markets Equity fund has returned 27.31% in the three years to the end of June 2013. This compares to an 11.57% rise by its Citywire benchmark, the MSCI EM (Emerging Markets) TR USD.