FUND INTERVIEW: ABERDEEN PACIFIC EQUITY FUND

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%

Hugh Young, the managing director of Aberdeen Asset Management and a key fund manager for the Aberdeen Pacific Equity Fund shares his views about the Fund's investment strategy and his thoughts on some key Asian stock markets.

The Aberdeen Pacific Equity Fund is exceptional in that it is one of five funds in Singapore's unit trust industry that has been given a five-star rating by Standard & Poor's for consistently outperforming its peers. It also has the highest information ratio and the lowest expense ratio amongst CPF funds that are focused on the Asian region.

Vasu: How should the Aberdeen Pacific Equity Fund feature in an investor's portfolio?

Hugh: This Fund should serve as a core Asian equity holding in an investor's portfolio. It is a diversified fund with exposure to various Asia Pacific markets including South Korea, Hong Kong, Singapore, Australia, India, Thailand, Taiwan, Indonesia and Malaysia, among others. Investors with a higher risk appetite and looking for shorter term opportunities may want to consider the individual country funds in our stable.

Vasu: What are the exceptional features of the Fund?

Hugh: The beauty about this Fund is that it invests in several of our sub-funds that are focused on individual Asian markets. For example, the Aberdeen Pacific Equity Fund is invested in our Singapore, India, Thailand, Indonesia and Malaysia country funds. Had we invested directly into these countries, instead of through the feeder structure, we may have difficulties finding many individual stock ideas. But by investing in the individual country funds, the Aberdeen Pacific Equity Fund is able to get exposure to a wider array of stocks in individual markets.

Vasu: Does feeding into individual country funds add to the expenses of the Aberdeen Pacific Equity Fund?

Hugh: No it does not. We have rebates in place to make sure that the expenses are kept in check. Looking at the data unveiled earlier this week for unit trusts included in the CPF Investment Scheme, you see that the Aberdeen Pacific Equity Fund has an expense ratio of only 1.37 per cent while other funds in the "Equity Far East & Pacific Ex-Japan" category had expense ratios ranging from 1.53 per cent to 3.74 per cent.

Vasu: What are the prospects for the key markets which the Aberdeen Pacific Equity Fund is invested in?

Hugh: As at June 28, the fund had the largest exposure of 16.5 per cent to South Korea. This is the highest exposure we've had to South Korea in a long time. Korea is still cheap in terms of price-to-earnings ratio and the country has made significant reforms by way of consolidations and improvements in the area of corporate governance. We view the latter positively. The economy is also improving, which should augur well for stock prices.

Vasu: How about Hong Kong?

Hugh: The Fund had a 15.9 per cent stake in Hong Kong as at June 28 and we are looking to raise our exposure to the market. Our holdings in Hong Kong are focused on companies with a regional exposure. For example, we have significant holdings in Giordano Internaional and Swire Pacific. We prefer to focus on these companies instead of the ones that are leveraged onto the Hong Kong economy which is going through a rough patch.

Vasu: What are your views about Singapore in which the fund had a 15.6 per cent stake at the end of June?

Hugh: We are positive on the market as valuations are still reasonable. Historically, we've had an overweight position on Singapore. We still like the banks which will benefit from consolidation. There are also other corporate restructuring and take-over stories in Singapore. In Singapore, we have outperformed the market given our bottom-up strategy where we pay careful attention to valuation measures, corporate governance and management quality before picking stocks.

Vasu: What would you say are the strong arguments in favour of Asia?

Hugh: The overall outlook for the region is relatively encouraging. There are doubts about US growth, but this is not a major issue as Asia didn't do very much when the US economy was booming. The bigger issues for the region are more qualitative rather than quantitative. In this respect, we can say that Asia today is far better then it was compared to five years ago. The region certainly looks better than the US for now. Today many Asian companies are run by honest entrepreneurs. More needs to be done by way of reforms but Asia is moving in the right direction.