(Bloomberg) -- Ireland's best fund manager may be based in Scotland, but his performance has been driven by investing outside the U.K.
Aberdeen Standard Investments Ltd.'s Irish managed fund posted a 9.3 percent return in 2017, compared with an Irish active managed funds average of 7.3 percent, according to Rubicon Investment Consultancy. While Adam Rudd, investment director at the firm's multi-asset team, is based in Edinburgh, his fund is aimed at Irish pension funds.
As concerns around Brexit mount, Rudd, who manages about 3.9 billion pounds ($5.5 billion) in all, is largely steering clear of the U.K. in favor of emerging markets.
“The likes of Royal Dutch Shell, British American Tobacco and Diageo will be fine if there's a hard Brexit but the upside potential is limited, ” said Rudd, 34. “We are long emerging markets relative to U.K.”
Read more on emerging market equities
The MSCI Emerging Markets Index rose 34 percent last year, compared with an 8 percent increase in the FTSE 100 Index, and has had its best start to a year since 2012. U.K. Prime Minister Theresa May is still grappling with her divided Conservative party over what kind of Brexit Britain should seek, though it seems likely that U.K. banks will lose easy access to European Union markets.
“If banks have to ring-fence U.K. balance sheets, that'll have implications for some firms,” said Rudd. “HSBC has plenty of capital elsewhere so it shouldn't be affected but other firms may need to rein in their non-U.K. business if most of the capital is being generated from the U.K.”
Cheaper Stocks
Rudd prefers Asian technology stocks, such as Tencent Holdings Ltd, Alibaba Group Holding Ltd and Baidu Inc. In all, 75 percent of the fund is invested in equities.
“There is a structural shift from fixed stores to online, ” he said. “Even though tech companies have done well so far, that trend has a long way to go.”
The other attraction of emerging market stocks? They're cheaper than elsewhere. Samsung Electronics Co Ltd trades at seven times forward earnings. Compare that to Apple Inc. which is running at 15 times forward, Rudd said.
“It's not that Samsung is an inherently better company, it's that it's much cheaper,” he said.
Rudd who has earmarked 12 percent of the fund for bonds, likes local currency debt in Russia, Mexico, Brazil and Malaysia, in his hunt for yield.
He gives the example of Mexico's two-year bond, which yields about 7.5 percent “on a lot of fear about the U.S. pulling out of Nafta.”
“But we believe that has been overly priced in,” he said.
Not that he's dismissing U.K. stocks entirely, as he likes a group of firms including Trinity Mirror Plc and Thomas Cook Group Plc.
“These may have unattractive business models so the stocks are very cheap but if there is anything like consolidation or a slight up-tick in their market, then they would offer very strong returns,” said Rudd.
To contact the reporter on this story: Peter Flanagan in Dublin at pflanagan23@bloomberg.net.
To contact the editors responsible for this story: Ambereen Choudhury at achoudhury@bloomberg.net, Dara Doyle, Justin Carrigan
©2018 Bloomberg L.P.
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