I recently had the opportunity to participate in a conference call with Aberdeen Asset Management. The topic of the day was their Indonesia Fund (IF, quote).
Much of the world these days is focusing on the US and its impending fiscal cliff as well as re-analyzing the merits of the BRIC countries as investments for the future. Savvy emerging markets investors have already, in a sense, moved on. While every emerging market portfolio will continue to be invested in the BRIC countries (in an evolving fashion) many newer emerging market investors are just discovering the non-BRIC up-and-comers.
Indonesia is one of those notable countries. As identified by Jim O’Neill of Goldman Sachs in his recent emerging market acronym MIST (Mexico, Indonesia, South Korea, Turkey) Indonesia is a country with many admirable qualities and presents an opportunity for investors seeking returns superior to what can be had in many developed economies and the major emerging markets.
Based in Malaysia, the Aberdeen Asset Management Indonesia Fund is not benchmark driven. A pet-peeve of mine has always been the obsession of the mutual fund industry with benchmarks. Benchmarks are a tool to compare performance of similar funds. However the focus on benchmark comparisons has caused much of the industry to not try and get the best returns but to get better returns than the competition relative to the benchmark. This means mediocre performance is often rewarded. A good fund manager beats his benchmark by 1% and gets a giant bonus. A bad fund manager trails the same benchmark by 1% and gets fired. After fees and taxes the benefit to the average investor is negligible (hence the advocates of index investing like John Bogle of Vanguard).
The fund management of IF has been focusing much of its energy on the consumer sector. According to management one reason for this focus is the quality balance sheets that they can find in Indonesian consumer-oriented companies. The fund shies away from banks, principally because it does not want to own state controlled organizations. It is underweight utilities for a similar reason.
The top ten stocks account for nearly 65% of the portfolio. A heavy concentration but the fund tends to own its positions for very long periods, assuming the performance is satisfactory. One stock currently in the portfolio has been held for more than 20 years. The fund also has a small cap bias and is company (not sector) driven. This lends itself to different and ideally better performance relative to a benchmark.
The fund management is anticipating 6% GDP growth for Indonesia over the next few years. They did express a slightly bearish outlook despite that figure for the next year or two but they made sure to emphasize the long term fundamentals are unchanged.
Morningstar.com gives the fund a 5-star rating which puts it near the top of its class. It has averaged nearly 10% per year over the past five years and more than 23% per year for the past three years. Indonesia is certainly an emerging market to be invested in and the Aberdeen Asset Management Indonesia Fund is one to consider for this part of any portfolio.