Edinburgh Dragon roars back with 40% gain in six months
THE good times are returning for shareholders in Edinburgh Dragon, an investment trust that seeks to generate returns from investing across diverse Far Eastern stock markets.
After making a number of mistakes two to three years ago, the management team, led by Singapore-based Adrian Lim, is back on form. Over the past six months, the fund has recorded total returns of 41 per cent, in the process beating most rivals investing in the same region.
The stellar gains have been recognised by equity research house Marten & Co. In a detailed note on the trust, published a few days ago, it says it has witnessed a ‘noticeable improvement’ in the fund’s relative performance.
Though the trust is headed by Lim, he is part of a big Asian investment team at Aberdeen Asset Management. More than 70 per cent of the £83billion of equity assets that Aberdeen manages worldwide are listed either in Asia Pacific or emerging markets.
Malaysia-born Lim is delighted that Dragon is on fire again. ‘The numbers have not looked good over the past few years,’ he admits. ‘But we’ve tinkered with the portfolio, diversified into more holdings and shareholders are starting to reap the benefits.’ He says the fund has suffered on several fronts – either holding positions in companies that have had to go through painful reorganisation, hitting their shares (Standard Chartered, for example), or ignoring stocks that have gone on to perform well, such as Chinese internet group Tencent, where Lim was not happy about its legal structure.
It also made the mistake of reducing its exposure to Chinese equities too early, missing out on gains before the market tumbled over fears that the country’s growth bubble had burst. Today, Dragon is invested across 60 stocks with a bias towards financial institutions. This compares with 50 three years ago.
The diversification has allowed Lim to make some bold moves. ‘We’ve used the increase in holdings to invest in some frontier market ideas,’ he says. These include Vietnam Dairy Products, which Lim says has a ‘strong market position’ in Vietnam as a result of a good distribution network and sound logistics.
Another bold addition to the fund is Yoma Strategic Holdings, a property developer with shares listed in Singapore but investing heavily in the burgeoning economy of Myanmar (Burma).
‘The country is making the painful transition to democracy,’ says Lim. ‘It’s work in progress but there are lots of opportunities investors can benefit from.’
Lim believes Asia remains on a ‘sound footing’, though he admits there are a number of ‘unknowns’ that could upset the apple cart, including the course of interest rates, the dollar and the pace of economic recovery in China.
‘On the whole, company balance sheets are adequate and sufficient enough to provide insulation from any financial shocks that may come the region’s way,’ he adds.
Edinburgh Dragon is not the only Asian investment trust that Aberdeen manages. Others include Aberdeen New Dawn and Asian Smaller Companies. Unlike these funds, Dragon does not invest in Australasia.
‘A simple thesis underpins Dragon,’ says Lim. ‘We invest in quality stocks where the corporate governance risk is low. Over the long term, such a proposition should hold good.’