Buy, Hold, Sell: Aberdeen New Dawn investment trust

James Thom, co-manager of Aberdeen New Dawn trust, details some of the holdings he has been adding to or reducing recently.

Over the past decade, there has been a steady growth in interest in Asia Pacific-focused funds and trusts among retail investors. Aberdeen New Dawn, however, has been offering investors a route into the region for almost 30 years.

‘New Dawn has been running since the 1980s and had a presence in Asia since the early 1990s,’ says co-manager James Thom, who has been part of the team for the past eight years. ‘We have a well-resourced team on the ground in Asia – one of the better-resourced teams in the sector.’

Thom describes the investment philosophy of the trust as being focused on finding quality companies and not paying too much for them. ‘We have a very bottom-up approach,’ he says. By ‘quality’, Thom says he means firms that have a strong competitive advantage and good balance-sheet strength. However, he also notes that the trust looks closely at environmental, social and governance (ESG) risk, as these are very important factors for the region.

Thom also describes his trust’s approach as focused on long-term holdings. ‘We are very much a buy and hold fund,’ he says.

Over the past five years the trust has returned 34.7 per cent.

 

A graph showing how returns at Allianz Technology have risen sharply

 

Buy 

TSMC (TPE: 2330)

Taiwan Semiconductor Manufacturing Company (TSMC) is the world’s largest semiconductor foundry, with a market capitalisation of $220 billion (£168 billion). New Dawn has had a holding in TSMC for a very long time, and it ticks a lot of the boxes for the sort of companies the trust looks to invest in. ‘This is a highly capital-intensive sector, which creates high barriers to entry,’ says Thom. That gives the company a safe moat.

At the same time, TSMC, unlike its competitors, ‘has the balance-sheet strength to stay investing and keep ahead of the technology curve,’ giving it a competitive advantage within the sector.

New Dawn topped up its holding in TSMC at the end of April at an average price of 225 New Taiwan dollars (NT$). The decision was primarily due to Thom’s favourable long-term view of the company; he took the opportunity to add shares when supply-side concerns created a share-price wobble. At the same time, ‘the demand story is changing... with new drivers such as artificial intelligence, the Internet of Things and 5G adding an extra leg of growth.’

As of late September 2018, TSMC’s share price was around NT$263.

A graph showing how Taiwan Semiconductor Manufacturing Company has new growth drivers

 

Hold

Overseas Chinese Banking Corp (SGX: O39)

Overseas Chinese Banking Corp (OCBC) qualifies as a true long-term hold, having been first purchased by New Dawn in the year 2000. ‘It’s been a core holding where sometimes we have taken profit and sometimes, when the price is weak, topped up,’ says Thom.

The business itself is one of Singapore’s largest and most successful universal banks. ‘We like its broad shape. It’s nicely diversified,’ Thom comments. Within Singapore it has operations in retail, corporate, and private banking as well as wealth management.

However, it’s not just a Singapore story. The bank has operations spread across the region, allowing it to tap into faster-growing regional markets such as Indonesia, Hong Kong and Malaysia. ‘This is where the growth comes through,’ he adds. The company also passes New Dawn’s quality tests. Thom notes that the bank is well-capitalised, has low amounts of non-performing loans and has a return on equity of 12 per cent.

However, it is only a hold right now due to global economic concerns. Current trade concerns and currency weakness among emerging markets in the region are weighing on the stock. ‘While this means valuations are reasonably attractive, this is not the time to go headfirst into it,’ Thom explains.

Sell

CIMB Group Holdings (KLSE: CIMB)

New Dawn purchased CIMB, a Malaysian banking group, in 2007. ‘It was, in a sense, trying to do what OCBC does,’ says Thom. CIMB was aspiring to extend beyond its home market and transform itself into a regional player. To achieve this, it carried out a number of acquisitions in Thailand, Indonesia and the Philippines. ‘That was our investment thesis and we backed it on this basis,’ he adds.

Unfortunately, the bank’s vision has yet to materialise. ‘It ran into asset quality issues. The Indonesian subsidiary particularly ran into difficulties,’ says Thom.

For the bank to succeed in its task of becoming a regional player, a lot of restructuring work was required. ‘As is often the case with these exercises, we just weren’t seeing the upside coming through quickly enough. We exited CIMB in January 2018 at an average price of 6.70 Malaysian ringgits (MYR).’

New Dawn’s holding was sold in April, and since then the company’s share price has continued to struggle, sitting at MYR 6.00 as of the end of September.

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