Aberdeen’s view is that markets are not always efficient. Companies can change management, business practice and direction. Companies can be valued lower than they are really worth, and identifying such companies is fundamental to generating long-term growth.
The key is knowledge
We aim to achieve superior investment performance through first hand research of companies themselves, and through the active management of portfolios. Our house style, whilst constantly seeking new opportunities, is to focus on companies that we understand well and that offer good value. But getting on to our ‘buy list’ takes some doing: we don’t commit a penny until a company has passed through a rigorous assessment process.
Looking for quality and price
We estimate a company’s worth in two stages, firstly “quality”, then “price”. We define quality in reference to:
- The management of the company
- Its business focus
- Balance sheet
- Corporate governance record.
In our search for quality for our actively managed funds, we believe it is of vital importance to interview the management of every company before investing. The smallest details can make the biggest differences, and for this reason we give our fund managers the power of discretion. The fund managers are required to make the case for their investments to their fellow managers. Everyone must agree before a new investment is made. Calculating price is a more technical process, including key financial ratios, market peer group and business prospects. Only when all of our criteria are met do we invest in a company.
A little of what we don’t do
There are plenty of things that other fund managers do that we don’t. Unlike many of our peers, our actively managed portfolios aren’t limited by market weightings. We don’t let market indices dictate how much should be held in a particular market or sector. That means we won’t hold a company just because it’s one of the largest companies on a stock exchange – nor will we ignore a company just because it’s a market minnow (although we are careful about very small stocks that are hard to trade). Instead, we give our fund managers the simple freedom to focus on the stocks they really like and disregard the ones they don’t – while always keeping within the risk guidelines detailed below.
A little of what we do
Funds are managed on a team basis as there are no 'star' fund managers in Aberdeen: investment managers do their own research and analysis and all ideas are shared via formal committees and common databases; consistency is implemented across the group’s offices worldwide by the Investment Committee, led by the Chief Investment Officer. A continuous watch is kept over critical factors that influence investment decisions, so that when views change, action is taken swiftly and decisively to reposition portfolios.
Managing risk is key to our process. An independent Performance & Risk team ensures that portfolios behave as we say they do and check that our risk guidelines are appropriate, for example in terms of formal limits on the extent of an individual holding or exposure to certain sectors. However we recognise that risk is controlled most effectively by having a thorough knowledge of every company we invest in – and ensuring that each portfolio is properly diversified at all times.