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Stockpickers can prove their worth in crisis, says Aberdeen


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“These type of markets I think are going to bring the spotlight back onto active versus passive, and if I consider the outlook I think we can agree that it’s going to be incredibly volatile,” Lopez says.

“With that volatility, if you’ve got a very clear investment process and a disciplined one around high-quality companies, which is what we do, I think that sets you up probably better than most.”

An active manager would say that, of course. But the point is backed by Aberdeen’s performance during the volatile March quarter, and on a longer-term basis.

In the three months to March, its largest fund, small caps, limited the plunge in returns to -21.3 per cent (before fees) compared with -26.7 per cent for the benchmark index. Over three years, its small cap, large cap and Ex-20 (which picks companies outside the ASX20) have all outperformed, making positive annual returns, compared with negative returns for their respective benchmarks.

Lopez, who grew up in Sydney after her parents migrated from Spain, joined Aberdeen as a graduate and has been a fund manager at the firm for about 15 years.

In her time with the firm, the largest active manager in the UK, she’s had stints in London, Hong Kong, Singapore and Thailand, covering everything from health care, to materials, banks and technology firms.

Stock pickers have faced stiff competition from low-cost index funds in recent years, but Lopez argues the pandemic has vindicated Aberdeen’s focus on deep research to find quality businesses, with strong balance sheets.

“We always say ‘you never know when the proverbial’s going to hit the fan, but when it does, you really want to have a strong balance sheet,'” Lopez says.

Market volatility and emergency equity raisings have also thrown up the opportunity to buy stock cheaply, including through raisings by Cochlear and Auckland International Airport around the peak of the market panic.

Lopez, who has covered Cochlear for almost 10 years, was surprised when the hearing implant maker sought $800 million from big investors in late March, but the fund bought in as as a chance to remove solvency risk, and to back future profit growth. “That was one that we liked, and we participated, and we bought more of,” she says.

Cochlear issued shares in the raising at $144 each, they were 26 per cent higher at $181.66 last week.

Auckland International Airport, which is dual-listed in Australia and New Zealand, was trading near record lows at the time of its raising in early April, but Lopez says tourism is of such importance to NZ that the company would not be allowed to fold. Aberdeen participated “strongly” in the capital raise.

“It was trading below book value, and that company has never traded below book value since its IPO,” she says.

As well as providing a window for buying shares at reasonable prices, the pandemic is also forcing investors to think about how companies might be affected by long-term or “structural” changes in people’s behaviour.

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Two small cap stocks it has been adding to the portfolio are cloud services provider Megaport and data centre operator NextDC, both of which should benefit from higher data consumption and more of us working from home.

At the other end of the spectrum, Lopez thinks owners of office blocks could be among the losers from more of us working from home, especially at a time when the supply of office space is rising. The fund has sold its holdings in Dexus, Australia’s largest office landlord.

After the sharp rally during April, Lopez says valuations in the local market no longer reflect the uncertainty about the economy. The fund was buying about four weeks ago, but is more on the sidelines now, she says.

“From a personal opinion, I think the markets are out of sync at the moment with the actual economic reality that’s hitting many of our companies,” she says. “The very sharp bounce that we’ve seen, to me it sort of feels a little too soon and too strong.”

In an uncertain environment, she says the fund’s investment philosophy will remain focused on hunting out quality companies where the long-term potential is under appreciated by the market. The fund, which eschews being typecast as a “growth” or “value” manager, also puts a high degree of focus on environment, social and governance issues.

She also admits it’s simply very hard to have a strong view on the outlook at the moment, so it’s important to be honest about that uncertainty, and be prepared to change views where needed.

“It would be a very brave person, arguably an irresponsible one, who would have a very strong view about the outlook. I just think it’s unchartered territory. We’re fortunate that we can look through this, so we do invest taking a three to five year view.”

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