Aberdeen Investment’s emerging markets equity income strategy, combines a disciplined cash‑flow‑focused approach with balanced style positioning and a strong emphasis on risk management, find out more...
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Can you give an overview of the team running the fund and your investment process?
I lead the Aberdeen emerging markets equity income strategy, supported by a dedicated portfolio construction group (pod) and a broader Emerging Markets equity team of around 50 investors. The other pod members include Gabriel Sacks, Isaac Thong and Ben Shrewsbury. The wider team combines local, on‑the‑ground research with centralised portfolio construction, ensuring both depth of insight and consistency of decision‑making.
The investment process is fundamental, bottom‑up and centred on a "follow the cash flow" approach. The team focuses on identifying companies with strong, sustainable cash generation and disciplined capital allocation. Ideas are generated by regional analysts and subjected to peer review before inclusion in the portfolio.
In constructing the portfolio, the team apply style, risk and yield disciplines to stock level convictions. We seek to maintain a balanced style profile with 50% in profitable growth and 50% in sustainable value and we do not alter the balance. The strategy is risk aware and maintains a constrained tracking error, with a range of 3-4%, with a strong emphasis on stock‑specific risk rather than factor exposure. Finally, we maintain a yield premium vs the reference index of at least 30%, which has been an important driver of total returns since inception.
What do you see as the big opportunities and risks for your fund for the rest of the year and moving into 2027? How are you positioned in this environment?
The closure of the strait of Hormuz will create a supply side shock. The impact of this depends on the duration of the closure, and at present markets are willing to look through the risks. A quick resolution will allow the global economy to snap back to growth, but a prolonged closure will slow growth and require responses from government, including fuel supply constraints. If energy supply needs to be quickly re-arranged, investment will be re-directed from more productive areas, consumption will slow, as will global GDP. There may also be a rally in the USD, as investors seek safe heavens. However, we expect retrenchment in this manner to be short lived. Medium term we are confident that the drivers of EM will emerge on a stronger footing once the conflict is resolved.
Faced the binary outcomes we have attempted to balance the risks in the portfolio, to both he upside and downside. Technology stocks continue to rally, despite higher geopolitical risk premiums and we have allowed our preferred AI plays to run, including leading memory suppliers. However, in other areas we have reduced risks and exposure to cyclicality. For example, we have trimmed some bank exposure and some smaller holdings in Frontier markets. There are some cases we are monitoring for additions / top ups, where valuations have been a hurdle in the past, including some stocks in India.
Can you identify a couple of key investment opportunities you are playing at the moment in the portfolio?
The portfolio remains anchored to two pillars: sustainable high dividend and profitable dividend growth, within the buckets there are three structural themes that underpin earnings – technology, infrastructure and domestic consumption.
In technology, our focus has moved from AI training to monetisation. We are increasing exposure to companies enabling AI applications, where visibility on cash flow is improving. Realtek is a recent addition, benefiting from rising device connectivity and strong free cash flow. We retain core holdings in MediaTek, Samsung and SK Hynix. We also see growing opportunities as China develops domestic technology standards, expanding the investable universe.
In infrastructure, demand is supported by national resilience. Copper remains a key input for grid resilience, with favourable supply dynamics and long lead times. Grupo Mexico is our preferred exposure given its low-cost assets. We also favour uranium through Kazatomprom, reflecting nuclear's role in baseload energy. Recent additions include Metlen, where free cash flow is improving post capex, and CATL, where we see strong positioning in batteries and energy storage.
In domestic consumption, we focus on businesses linked to rising incomes and a growing middle class. Bangkok Dusit Medical is a recent addition, offering attractive income with improving cash flow as capex peaks and utilisation rises.
To learn more about emerging market equities and how to diversify your clients' portfolios, please visit our website.
Companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.
Important information
Objective: To generate income and some growth over the long term (5 years or more) by investing in emerging markets equities (company shares).
Investment involves risk. The value of investments, and the income from them, can go down as well as up and an investor may get back less than the amount invested. Past performance is not a guide to future results.
Equity Risk - The fund invests in equity and equity related securities. These are sensitive to variations in the stock markets which can be volatile and change substantially in short periods of time.
Emerging Markets Risk - The fund may invest in emerging markets, where political, economic, legal and regulatory systems are less developed. As a result, investing in emerging markets may involve higher volatility and a greater risk of loss than investing in developed markets. Where the fund invests in Variable Interest Entity (VIE) structures to gain exposure to industries with foreign ownership restrictions or invests in Chinese assets via Stock Connect / Bond Connect, there are additional operational risks, which are outlined in the prospectus.
Derivatives Risk - The use of derivatives may involve additional liquidity, credit and counterparty risks. In some cases, the risk of loss from derivatives may be increased where a small change in the value of the underlying investment may have a larger impact on the value of the derivative.
Interest Rate Risk - The fund invests in securities which can be subject to price fluctuation for a variety of reasons including changes in interest rates or inflation expectations.
The fund price can go up or down daily for a variety of reasons including changes in interest rates, inflation expectations or the perceived credit quality of individual countries or securities.
The use of derivatives carries the risk of reduced liquidity, substantial loss and increased volatility in adverse market conditions, such as a failure amongst market participants. The use of derivatives may result in the fund being leveraged (where market exposure and thus the potential for loss by the fund exceeds the amount it has invested) and in these market conditions the effect of leverage will be to magnify losses.
United Kingdom (UK): Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London EC2M 4AG. Authorised and regulated by the Financial Conduct Authority in the UK.
