ABERDEEN PACIFIC EQUITY FUND - CONSISTENT OUTPERFORMER

Invest in the Aberdeen Pacific Equity Fund before July 31 and enjoy a discount of 0.5% off the normal front-end fee of 2.5%

As at July 5th, there were only five unit trusts amongst the 351 unit trusts in Singapore that were given a five-star rating by Standard & Poor's Fund Services.

The five star rating is the highest rating and according to Standard & Poor's it reflects the "performance of a fund and the consistency of that performance relative to other funds in the sector".

One the five unit trusts that were given a five-star rating was the Aberdeen Pacific Equity Fund which outperformed its peers in the "Equity Far East & Pacific Ex-Japan" sector. There are a total of 35 unit trusts in this sector.

The Aberdeen Pacific Equity Fund was launched in December 1997 and it is included in the CPF Investment Scheme.

The fund posted a net return of 21.6 per cent for the three-year period to July 5, making it the best performing fund in the "Equity Far East & Pacific Ex-Japan" sector. Its performance is also much better than the average decline of 17.1 per cent posted by the funds in the sector during the three-year period.

So what is behind the exceptional performance of the Aberdeen Pacific Equity Fund?

The strong performance is partly a reflection of Aberdeen's conservative management style, which is quite appropriate given the volatility in financial markets over the last three years.

Aberdeen has a solid investment process that is rooted in in-depth research and regular contact with the management of companies that Aberdeen's funds are invested in.

The fund manager pays very careful attention to valuation measures like price-to-earnings ratio, price-to-book and return on equity. Qualitative measures like quality of management, corporate governance and transparency are other important considerations.

The superior investment process comes through clearly in the information ratio of the Aberdeen Pacific Equity Fund. The information ratio is widely used by big institutional investors like the Government of Singapore Investment Corporation when evaluating fund managers. It is a measure of how skillful a fund manager is in outperforming the benchmark while keeping a lid on risk.

According to data from Mercer Investment Consulting, the Aberdeen Pacific Equity Fund had an information ratio of 1.3 for the three-year period up to end-March this year. This is the highest information ratio amongst all CPF equity funds that are focused on the Asian region.

The other attraction of the Aberdeen Pacific Equity Fund is its diversified exposure to key Asian markets. As at June 28, the fund has investments in South Korea (16.5 per cent), Hong Kong (15.9 per cent), Singapore (15.6 per cent), India (9 per cent), Australia (8.8 per cent), Taiwan (6.6 per cent), Thailand (6.4 per cent), Malaysia (5.8 per cent) and Indonesia (5.6 per cent) among others. So for individuals who are not comfortable investing in single countries and want a safer way to participate in Asia's prosperity, the Aberdeen Pacific Equity Fund is an investment vehicle to consider.

Fund managers say that there is good reason to be bullish on Asia and plan to allocate more funds to the region over the next 12 months.

They say that Asia is likely to outperform the US, as valuations are more attractive. Also, earnings expectations in Asia are more realistic and are likely to be exceeded. In contrast, earnings on Wall Street appear too high and are currently being downgraded. So there is a bigger risk of earnings disappointments in the US compared with Asia.

Fund managers also say that Asia has also gone through a longer period of restructuring and consolidation after the crisis in 1997-98 and it's ahead of the US in this respect. The stock market bubble had only burst in the US recently and it will take a longer time before the consolidation is over. So there is a good chance that Asian bourses will recover ahead of US markets.

The growing specter of accounting scandals in the US may also lead institutional investors to search for safer havens. Asia is seen as less vulnerable to accounting irregularities as the region has gone through a shakeout over the last five year. Also unlike the US, fewer companies in Asia link bonuses and incentive packages of senior management to stock price performance or earnings.

Aberdeen's investment methodology of bottom-up stock picking, is ideal in the current environment where investors are a lot more discerning and stocks are being re-rated on their individual merits. This is unlike the late 1990s when many stock market rallies took place across the board.

Next week, watch out for our exclusive interview with the lead fund manager for the Aberdeen Pacific Equity Fund