Investors urged to pay more attention to Europe
Many investors ignore valuations and risks involved in investing in emerging markets, particularly China, says Aberdeen fund manager Tom Hooper.
Investors worldwide are pouring money to emerging markets like never before, leaving markets such as Europe having to settle for the residuals. Aberdeen Asset Management fund manager Tom Hooper says this is a big mistake.
The huge inflow of funds at the expense of Europe highlights how misunderstood Europe is, especially among investors in Asia, says Hooper, who is based in London and part of AberdeenÆs pan-European equity desk of 17 fund managers. He was in Hong Kong recently precisely to talk to clients and fund distributors about the importance of giving Europe the attention it deserves.
ôPeople think that investing in Europe means investing in old economies like France and Germany. That misses point entirely,ö Hooper says. ôThe reality is when you invest in Europe, many of those companies there are exposed to high growth emerging economies within emerging Europe, Russia and Asia including China.ö
There is a vast pool of European companies that are low-risk companies that generate high levels of returns from the same emerging markets that are sought after these days, while at the same time offering a more attractive risk-return opportunity.
ôI would hope that if people learned anything from the US subprime and credit crisis, itÆs that both risk and return should be considered,ö he says.
The fixation over China shares is not a healthy one, and is obviously largely influenced by past performance, he says. ôWhen people look at China, they are looking at historical return. Are they looking at valuation, at risk? I donÆt think they are.ö
Hooper adds that investors are not solely responsible for the mad dash to buy China shares. Independent financial advisors and distributors are partly responsible as well. ôItÆs easier to sell a product that is in such high demand. They donÆt have to work very hard to convince the investors about the merits of investing in China. Investors want to give them the money to invest in China. ItÆs an easy sell for them.ö
AberdeenÆs $124 million Aberdeen Global European Fund û registered as Aberdeen Asset Management Pan European Equities in Hong Kong û has seen some redemptions in recent months from investors who said they were adding more to their China portfolio, but thankfully, the redemptions were ômarginalö in total, Hooper says.
Within AberdeenÆs European portfolios, examples of companies that generate revenues from emerging markets are German general industrial and machinery company Man AG, French power distribution and automation systems company Schneider, and German retail building products company Praktiker.
Hooper says Man AG has recently reported that sales were up 13% in the first eight months of 2007, demand is outstripping supply. Most of the exceptional demand is coming from emerging Europe and Russia, he says. Man AG manufactures vehicles, engines, turbines and defense products, and offers engineering services.
SchneiderÆs business, meanwhile, is global with a significant portion of sales coming from Asia, especially China, he says. Schneider produces circuit breakers, remote installation management equipment, panelboards, programmable logic controllers, industrial control products, detectors, human-machine interfaces, and process controls.
Praktiker is generating high business growth from markets such as Poland and Romania, he says. Praktiker retails a variety of building materials, hardware, tools, equipment, gardening and home improvement products for do-it-yourself and professional builders.
AberdeenÆs key investment criteria include capital, transparency, business and its long-term sustainability, and quality of earnings. Its fund managers have an investment horizon of one to three years, but most stocks are held for longer than that in their portfolios.
Hooper says fund managers visit every single company in its portfolios at least twice a year, he says. ôWe are constantly building our understanding of the company, where value lies, where management is taking it, and where opportunities are are present.ö
As of now, the Aberdeen Global European Equity Fund consists of 64 stocks and a 4.2% investment in the Aberdeen European Smaller Companies Fund, which is made up of 67 companies.
ôWe feel the investments in the smaller companies are a key advantage of our fund. This gives our investors access to the high-growth, small-cap European companies,ö he says, noting Aberdeen applies the same investment criteria for the smaller companies, except for capital which is adjusted to fit the small- and medium-cap categories.
Financials make up around 32% of the Aberdeen Global European Equity Fund. Commerzbank, BNP Paribas, and UBS are among its top 10 holdings. Despite that, Hooper says the fund was left unharmed by the US credit crisis.
ôWhen we invest, we donÆt invest in companies that we donÆt understand and canÆt value
We have avoided banks with large scale investment banking and trading exposure
If earnings, earnings growth, and profits are mainly driven by very volatile, high risk returns, then that shows lack of transparency,ö he says.
In the case of UBS, the overall growth potential of the bank justified AberdeenÆs conviction to stick with it despite its subprime exposure, Hooper says.
ôWhile concerns over the sector affected share prices [of financials] and led to weakness, it didnÆt affect the fundamentals or the strengths of the businesses in our portfolios,ö he adds, noting Aberdeen used dips in the markets as an opportunity to build its position further.
The huge inflow of funds at the expense of Europe highlights how misunderstood Europe is, especially among investors in Asia, says Hooper, who is based in London and part of AberdeenÆs pan-European equity desk of 17 fund managers. He was in Hong Kong recently precisely to talk to clients and fund distributors about the importance of giving Europe the attention it deserves.
ôPeople think that investing in Europe means investing in old economies like France and Germany. That misses point entirely,ö Hooper says. ôThe reality is when you invest in Europe, many of those companies there are exposed to high growth emerging economies within emerging Europe, Russia and Asia including China.ö
There is a vast pool of European companies that are low-risk companies that generate high levels of returns from the same emerging markets that are sought after these days, while at the same time offering a more attractive risk-return opportunity.
ôI would hope that if people learned anything from the US subprime and credit crisis, itÆs that both risk and return should be considered,ö he says.
The fixation over China shares is not a healthy one, and is obviously largely influenced by past performance, he says. ôWhen people look at China, they are looking at historical return. Are they looking at valuation, at risk? I donÆt think they are.ö
Hooper adds that investors are not solely responsible for the mad dash to buy China shares. Independent financial advisors and distributors are partly responsible as well. ôItÆs easier to sell a product that is in such high demand. They donÆt have to work very hard to convince the investors about the merits of investing in China. Investors want to give them the money to invest in China. ItÆs an easy sell for them.ö
AberdeenÆs $124 million Aberdeen Global European Fund û registered as Aberdeen Asset Management Pan European Equities in Hong Kong û has seen some redemptions in recent months from investors who said they were adding more to their China portfolio, but thankfully, the redemptions were ômarginalö in total, Hooper says.
Within AberdeenÆs European portfolios, examples of companies that generate revenues from emerging markets are German general industrial and machinery company Man AG, French power distribution and automation systems company Schneider, and German retail building products company Praktiker.
Hooper says Man AG has recently reported that sales were up 13% in the first eight months of 2007, demand is outstripping supply. Most of the exceptional demand is coming from emerging Europe and Russia, he says. Man AG manufactures vehicles, engines, turbines and defense products, and offers engineering services.
SchneiderÆs business, meanwhile, is global with a significant portion of sales coming from Asia, especially China, he says. Schneider produces circuit breakers, remote installation management equipment, panelboards, programmable logic controllers, industrial control products, detectors, human-machine interfaces, and process controls.
Praktiker is generating high business growth from markets such as Poland and Romania, he says. Praktiker retails a variety of building materials, hardware, tools, equipment, gardening and home improvement products for do-it-yourself and professional builders.
AberdeenÆs key investment criteria include capital, transparency, business and its long-term sustainability, and quality of earnings. Its fund managers have an investment horizon of one to three years, but most stocks are held for longer than that in their portfolios.
Hooper says fund managers visit every single company in its portfolios at least twice a year, he says. ôWe are constantly building our understanding of the company, where value lies, where management is taking it, and where opportunities are are present.ö
As of now, the Aberdeen Global European Equity Fund consists of 64 stocks and a 4.2% investment in the Aberdeen European Smaller Companies Fund, which is made up of 67 companies.
ôWe feel the investments in the smaller companies are a key advantage of our fund. This gives our investors access to the high-growth, small-cap European companies,ö he says, noting Aberdeen applies the same investment criteria for the smaller companies, except for capital which is adjusted to fit the small- and medium-cap categories.
Financials make up around 32% of the Aberdeen Global European Equity Fund. Commerzbank, BNP Paribas, and UBS are among its top 10 holdings. Despite that, Hooper says the fund was left unharmed by the US credit crisis.
ôWhen we invest, we donÆt invest in companies that we donÆt understand and canÆt value
We have avoided banks with large scale investment banking and trading exposure
If earnings, earnings growth, and profits are mainly driven by very volatile, high risk returns, then that shows lack of transparency,ö he says.
In the case of UBS, the overall growth potential of the bank justified AberdeenÆs conviction to stick with it despite its subprime exposure, Hooper says.
ôWhile concerns over the sector affected share prices [of financials] and led to weakness, it didnÆt affect the fundamentals or the strengths of the businesses in our portfolios,ö he adds, noting Aberdeen used dips in the markets as an opportunity to build its position further.
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