Hugh Young, manager

For the 12 months to July 31 2020, Aberdeen Standard Asia Focus’s share price also dropped by a similar 13.2%. In comparison, the MSCI Asia Pacific ex-Japan Small Cap Index declined by 2.5%.

The decline in NAV was compounded by the gearing of the portfolio during the period, with the level of borrowings accentuating the fall, much the same as it has amplified the rebound from the lows of March.

Nigel Cayzer, chairman of Aberdeen Standard Asia Focus PLC, said: “Sentiment and liquidity, rather than fundamentals, have been the key drivers of equity markets, as investors vacillated between fears of an economic crisis caused by the pandemic and optimism resulting from unrivalled monetary and fiscal support worldwide.

“As a consequence, investors’ interests have been focused on the upper end of the equity universe by market capitalisation. Small companies have, therefore, generally suffered from neglect. For Aberdeen Standard Asia Focus, its policy of investing in companies valued at $1.5 billion or below, places it towards the even more overlooked lower end of the small-cap universe, where the negative impact was amplified. These smaller holdings suffered as defensive investors turned more risk averse amid the volatility.

“Although both frustrating and disappointing from a performance perspective for the period under review, there is hope looking further ahead. Many of the companies your Manager is investing in today are better valued, with convincing long-term prospects underpinned by strong balance sheets.”

He added: “I believe, as the Manager does, that these holdings are poised for a recovery when the pandemic ends. On top of that, increased volatility in stock markets has given rise to new investment opportunities and the Manager has been active in adding new ideas to the portfolio, positioning it so that it is primed for a turnaround and sustainable long-term growth. Encouragingly, many of these new holdings have been the best-performing stocks in the portfolio over the past year.”

Hugh Young, manager of Aberdeen Standard Asia Focus, commented: “While the portfolio’s performance is disappointing our focus has never been on what is in the benchmark, but rather on listed companies with a market value of $1.5 billion at most, which is at the lower end of the Asia small cap index, thereby excluding a broad swathe of companies in China, given the size of that market.

“Although this smaller and less liquid segment of the market has not been the most popular with investors in recent years, the indiscriminate selloff during the pandemic saw the share prices of many good-quality companies drop to attractive levels.

“These firms are not as well-researched or followed by market participants, which provides opportunities for us to capitalise on. Our disciplined research process has allowed us to identify which of these companies to include in the portfolio.”