What can Brazil’s World Cup squad tell us about investing in Asia?

Gabriel Sacks, Lead Manager of Aberdeen Asia Focus

Comparisons between assembling a competitive football team and constructing a sensibly diversified investment portfolio are routinely wheeled out whenever the World Cup rolls around. So here we go again.

You may instantly conclude, of course, that you have heard it all before. But hold on for just a moment. At the very least, this may be the first time you have heard it from a bona fide Brazil fan.

The son of a Brazilian mother and a South African father, I grew up in Rio de Janeiro and São Paulo. I have often wondered whether this set the stage for life as both an ardent devotee of the Seleçao and a fund manager specialising in emerging markets.

I gather from colleagues that, as is traditional, the composition of England’s World Cup squad has sparked plenty of debate. Ditto, to a lesser extent, Scotland’s line-up. Since I know remarkably little about football in the UK, I will take the usual hullabaloo as a given.

If you want to experience this sort of controversy at its fiercest and most fanatical, though, check out the drama surrounding Brazil’s selections. In particular, consider the supremely divisive inclusion of Neymar.

For those unfamiliar with these matters, I should point out that Neymar is Brazil’s all-time leading scorer. He was once widely touted as a talisman in the mould of greats such as Pelé, Sócrates, Romário, Ronaldo, Rivaldo, Ronaldinho and the like.

I should also point out, however, that his best days are very much behind him. He was arguably at his dazzling peak around a decade ago, when he played his club football for Barcelona. Nowadays, aged 34, he is increasingly vulnerable to injury and somewhat prone to tantrums.

So why was he granted a precious World Cup berth? We will never know for sure, but it seems reasonable to suppose the fundamental hope is that he will somehow recapture the glories of yesteryear.

Well, stranger things have happened. Maybe a wonderful fairytale will unfold – notwithstanding that, as I write, Neymar is once again back on the treatment table, having suffered a muscle strain.

Yet the fact remains that there comes a time when it is necessary to let go of the past and embrace the future. This is true both in football and in investing.

I would suggest every fund has at some stage held what might be looked back on as a “Neymar stock”. Ours undoubtedly has. This is because it can be very tempting to believe a sensational performer will always retain a certain something that sets it apart.

For example, we invested a few years ago in a Taiwanese e-commerce and media business that went from strength to strength during the COVID-19 crisis, when self-isolation measures accelerated the shift to hyperconnectivity. In 2021, amid the pandemic’s worst ravages, the company’s share price rocketed to a record high.

We subsequently reduced our position as the world gradually emerged from lockdown. We did so because we started to suspect – rightly – that we had seen the brightest of what the business had to offer. But we should have exited altogether.

Overall, the company made a positive contribution to our portfolio. Nonetheless, we can now recognise we stuck with it for too long and failed to sever our ties when it was still at the top of its game.

The lesson? It is extremely rare for a holding to serve investors’ best interests in perpetuity, just as it is extremely rare for a brilliant footballer to maintain an outstanding level of play throughout a career.

Aberdeen Asia Focus has held several stocks for more than five years. Some have even retained their appeal for twice as long. But we generally hold the vast majority for three to five years.

As a result, our annual portfolio turnover is around 25%. This illustrates our determination to identify new opportunities, to achieve a prudent blend of proven performers and rising stars and to maintain a healthy equilibrium between risk and reward.

In our view, the most effective way of realising these objectives is to draw on in-depth research, on-the-ground knowledge and direct engagement. In other words – and I hereby officially stretch the football analogy to breaking point – a solid scouting network is essential.

This is how we aim to uncover the hidden gems among Asia’s smaller companies. It is how we try to see beyond the big names of yesterday – and even of today – and concentrate instead on finding the big names of tomorrow.

Important information

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• The Company invests in smaller companies which are likely to carry a higher degree of risk than larger companies.
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• As with all stock exchange investments the value of the Company’s shares purchased will immediately fall by the difference between the buying and selling prices, the bid-offer spread. If trading volumes fall, the bid-offer spread can widen.
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Other important information:

The details contained here are for information purposes only and should not be considered as an offer, investment recommendation, or solicitation to deal in any investments or funds and does not constitute investment research, investment recommendation or investment advice in any jurisdiction.

The Aberdeen Asia Focus PLC Key Information Document can be obtained here.

Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London EC2M 4AG. The company is authorised and regulated by the Financial Conduct Authority in the UK.

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