HEAD-TO-HEAD: Aberdeen Vs Deutsche

A global fund is typically seen as a good option for a diversified portfolio that would lower concentration risk. 

But “global” is such a broad catch-all term that it pays to look under the hood to see what each fund operating under this theme is actually offering.

A global fund may not be spreading exposure as widely as it promises. Such funds often concentrate more than half of assets in a region, for instance, in the US, and tend to take hefty positions in either defensive or cyclical sectors. 

Against this backdrop, FSA compares the two global funds – the Aberdeen Global Opportunities Fund and the Deutsche Global Themes Equity Fund.  

London-based Ruzhen Li, head of research at Enhance Group, provides a comparative analysis.

Investment strategy

The Aberdeen fund was launched in August 2000, while the Deutsche product was launched in July 2006.

The two funds are both set up as unit trusts, and are both domiciled in Singapore.

The Aberdeen fund utilises the firm’s regional research teams of analysts to provide the initial stock buy list, Li said.

The firm’s global team, which consists of fund managers, then applies a further layer of due diligence and is ultimately accountable for the fund’s performance, she said.

The fund is constructed as a concentrated portfolio of 40-60 stocks, with limited reference to the benchmark indices or peer groups, but the fund manager does pay attention to diversification at sector and industry level. 

“The constraints on position sizes are relatively broad, although they are monitored regularly to make sure the portfolio reflects the attractiveness of valuation,” she said.

Due to its significant asset base, Aberdeen believes that it can influence companies to become more responsible, improve reputation, reduce legal costs and enhance returns over time.

“The strategy is bottom-up, benchmark agnostic, and aims to find good quality stocks at a reasonable price and hold for the long term. Stocks that fail to pass the ongoing quality and valuation screen will be sold,” Li said.

By comparison, the Deutsche fund is managed by a team of professionals that have been carved out of Deutsche Bank to become an employee-owned boutique investment firm, Li said. 

“The strategy is characterised by its top-down thematic guidance on bottom-up fundamental research. The fund manager believes that major shifts in science, economics and social behaviours are non-linear and often take abrupt turns, and attempts to identify such inflection points of secular trends and companies that will benefit from these changes.”

The themes must have certainty of occurring and visibility on how they will occur, and be applicable to an investment horizon of more than three-to-five years, she said. The team develops screening criteria for stocks for each theme, both from quantitative and qualitative point of view. 

“These screenings will provide around 500 stocks as the initial universe, which will then be subjected to fundamental research that has a bias toward [assessing the company’s] free cash flow for evaluation,” she said. 

The portfolio is typically agnostic to benchmark or specific styles, and consists of 90 to 130 stocks. 

“The fund manager also applies stress testing on the portfolio for extreme events and monitors the value-at-risk in normal conditions.”

Performance

Over the trailing five years, Aberdeen outperformed with a 3% return versus Deutsche’s 1.4%, according to Li’s data. Over the trailing three years, the positions were reversed with Deutsche outperforming, according to FE data (see chart below). 

For the one-year period to the end of March, both funds were in negative territory. The Aberdeen fund lost less during the period (-12.2%) than the Deutsche fund (-14.57%). 

“Both funds have higher volatility than the MSCI World Index, especially the Deutsche fund.  The difference in performance is understandable given the very different investment strategy, which leads to different characterstics of the portfolios,” Li said. 

The Aberdeen fund has a larger-than-average market cap, lower valuation and less cyclicality than the Deutsche fund, she said.

The exposure to the top three sectors for each product is signficiantly different:

Sources: FE Analytics; firms’ factsheet as of the end of February

The top geographic exposure is also markedly different: 

Sources: FE Analytics; firms’ factsheet as of the end of February

Aberdeen versus Deutsche over the last three years

 Source: FE Analytics