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Aberdeen hikes fee on top emerging markets funds

Aberdeen Asset Management insists a 2% charge is needed to prevent popular funds being swamped with new money.

Aberdeen hikes fee on top emerging markets funds

(Update with revised Citywire Verdict) Aberdeen Asset Management is slapping a 2% initial charge on its popular emerging market funds run by Devan Kaloo in an attempt to reduce the amount of money pouring in from investors.

Kaloo (pictured), who has a Citywire AA performance rating, is struggling to invest the inflows of money his funds are receiving. Aberdeen said it did not want his investment process to suffer.

The increased fee will apply to all new investments in Kaloo's £3.7 billion UK-domiciled Aberdeen Emerging Markets  fund, which is best known to UK investors, and the Luxembourg-based $15.5 billion (£9.8 billion) Aberdeen Global Emerging Markets Equity and $2.7 billion Aberdeen Global Emerging Markets Smaller Companies funds.

The fee will apply to all new investors, whether they use a platform to invest in the funds or buy directly via Aberdeen. Monthly savers, however, can avoid the 2% charge if they invest directly with Aberdeen.

Unusual move

Aberdeen stressed the fee would not go to the company but would be paid directly into the funds for the benefit of investors. It did not explain how this would improve the funds' problems with excess cash.

The hike in charges is the first step Aberdeen has taken since its boss Martin Gilbert (pictured) last year spoke of the need to curb flows into Kaloo's emerging market fund. At the time he said closing the fund to new investors would be a 'last resort'.

Aberdeen said: 'Despite our most recent efforts to slow inflows into our emerging market products, we have seen inflows pick up again.

'The 2% charge will be paid into the fund for the benefit of all investors and not Aberdeen. The annual management charges in respect of these funds remain unchanged.'

The 2% initial charge will come into effect on 15 April for Aberdeen Emerging Markets. It will apply to the other two funds from 11 March. 

John Brett, the firm's head of distribution, hoped the higher fee would encouraged investors to look elsewhere. 'Further inflows, if unchecked, will give rise to liquidity issues which may in time result in the investment team being forced to compromise its investment process, resulting in the introduction of lesser quality companies,' he said.

Kaloo took over Aberdeen Emerging Markets in 2005. Over five years it ranks sixth out of 79 funds in the Global Emerging Markets sector with a 70.6% return. His Aberdeen Global Emerging Markets Smaller Companies fund tops the sector with a 99.9% total return.

Citywire Verdict:

It will be interesting to see how investors respond, writes Gavin Lumsden. In theory, a great fund manager like Devan Kaloo may be worth paying extra for. I suspect, however, investors will take heed of Aberdeen's warning that the funds are getting too big for Kaloo to manage the way he wants to. Our research team took the hint last year and dropped Aberdeen Emerging Markets from Citywire Selection, although it still recommends the Aberdeen Asia Pacific and Aberdeen Asia Pacific & Japan funds run by Hugh Young, whose charges are not affected.  

It's curious the way Aberdeen is keeping the charge within the fund. While Aberdeen isn't profiting, it surely adds to the amount Kaloo has to invest, if investors aren't deterred and continue to buy units in the fund. Aberdeen says it will take other steps if the flow of money doesn't decline.

The timing of the raised charge on Aberdeen Emerging Markets, which occurs after the end of the tax year, looks like a concession to the firm's marketing team. However, Aberdeen assure me they don't really want to cram in a few more lump sum investors. They simply had to give investors 60 days' notice of the change in charges.

Looking for an alternative?

Go to our 'Best investment funds' page to see which other emerging markets funds our Citywire Selection team recommend as well as those run by Citywire-rated fund managers.

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