HEAD-TO-HEAD: Aberdeen Standard versus Schroders

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Investment approach

Both the Aberdeen Standard Investments (ASI) and Schroders funds invest in Asia-Pacific (ex-Japan) equities and have the same style, in which the products invest in quality growth companies, according to Daniels.

However, the funds have different methodologies.

While the ASI fund has a focus on quality and price, it also has a “focus on change” aspect that was implemented in 2018, following the merger between Aberdeen and Standard Life Investments, according to Daniels.

“The new investment approach was implemented for the team to be quicker to spot investment opportunities [in companies that are undergoing changes],” he said.

While the process is new, Daniels believes that it is not a “major overhaul” to the original focus on quality. “It is more of an enhancement at a marginal level.”

However, an investment that the team made in 2017 has made Daniels more cautious about the investment process. At the time, the fund had poor performance and revisited its thinking on many Chinese companies, which the team had long avoided because of corporate governance and transparency issues.

“They overhauled their thinking in terms of their China exposure. After that, they purchased Tencent and we had a lot of questions about that decision.

“The shift [to Tencent] raised concerns that the team has become more relaxed on corporate governance standards.”

Because of the changes, the ASI fund’s Morningstar process score was downgraded to average from above average, according to Daniels.

Turning to the Schroders option, Daniels said that the fund’s team begins by applying a quantitative screen that focuses on characteristics that display good downside resilience, such as dividend yield and cash flow yield. After that, in-depth company reviews are conducted to see whether they have a competitive advantage in the industry and if management is good.

The fund manager prefers stocks that are able to generate higher returns on investment capital (ROIC) or those with ROIC currently below the weighted average cost of capital (WACC) but are trending toward a positive spread. Valuations are also considered and stocks are graded from 1-4, with 1 representing a strong conviction that the stock will outperform.

“The fund involves rigorous research,” Daniels said. Compared with the ASI fund, Daniels believes that the Schroders fund has been more consistent.

Daniels added that the Schroders fund also employs some hedges – a feature that the ASI fund does not have.

He noted that the Schroders fund’s hedges are made to reduce risk exposure and not to add alpha.

“The fund may like a lot of companies from a bottom-up perspective, but they may not have a positive view of the markets they operate in from a top-down perspective.

“One example is that they have some Hong Kong real estate exposure, which had been a detractor in 2019. When volatility spiked in Hong Kong equities, the team decided to implement a hedge on some of the local indices,” he said.

Top five geographic exposure

Source: Fund factsheets.

Sector exposure

Source: Morningstar

Top 10 holdings

Source: Fund factsheets

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