Aberdeen Vs Henderson Japanese Smaller Companies

Added 20th March 2015

Japanese markets have been in the spotlight with the Nikkei benchmark index recently scaling to a 15-year high.

Aberdeen Vs Henderson Japanese Smaller Companies

Portfolio managers generally have an upbeat view on the Japanese equities, as they believe valuations look attractive and the companies are typically financially sound. 

Furthermore, earnings have been generally strong, but the growth is yet to be reflected in share prices.

There are also apparent corporate cultural changes that include increasing acceptance of dividend payments and share buybacks.

Against this backdrop, Fund Selector Asia takes a look at the Aberdeen Global Japanese Smaller Companies Fund and the Henderson Horizon Japanese Smaller Companies Fund, which explore investment opportunities in the small-cap sector.

Managers of both funds have a similar bottom-up stock picking investment strategy, but their investment style differs with the Aberdeen fund having a relatively longer holding period than the Henderson product, said Luke Ng, vice president at FE Analytics, who provides a comparative analysis.

Investment strategy review

According to Ng, both the Aberdeen and Henderson teams believe there are massive growth opportunities in the Japanese small-cap segments, where a significant number of stocks have no sell-side coverage, making the sector under-researched.

The Aberdeen fund uses the Russell/Nomura Small Cap Index as its relevant benchmark, whereas the benchmark of the Henderson fund is the Tokyo Stock Exchange Second Section Index.  

About 1147 companies are listed on the Russell index and 533 are listed on the TSE Second Section Index.

“But both funds do not follow the benchmark index for investments. Their portfolio positioning is slightly different relative to the benchmark.” 

The Aberdeen team aims to make initial investment into companies with market cap below JPY250bn ($2bn), and intends to hold these companies in the portfolio until they grow in market cap to JPY500bn.  

In regards to the Henderson fund, the manager targets stocks that generally fall within the bottom 25% of the market in terms of market capitalisation, ensuring these stocks are within a certain liquidity threshold. 

Both teams consider company visits as a vital part of stock selection, Ng said. 

The Aberdeen team typically favors companies that are transparent in their operations and are willing to take care of shareholders’ interests.

“The [Aberdeen] team looks for companies with solid growth prospects and financial strength. The team pays special attention to a company’s management quality and track record and intends to build relationships with them for long term.

“While small-cap companies may not have a long-standing history, the Aberdeen team would look for smaller businesses that are run by families or with management that they have built a relationship with for a long time.”

Worthwhile to note is that most of the stocks featuring in the Aberdeen fund’s top 10 holdings, have been held by the team for over five years. 

“The team tends to make investments when [it believes stock] valuations are reasonable, and prepares to hold them for the long term.”

Accordingly, the turnover rate of the Aberdeen fund portfolio is low compared to the Henderson fund, Ng said.

In regards to the Henderson fund, the holding period would be about one-to-two years.

“Apart from valuation and structural growth opportunities, the manager of the Henderson fund also tries to invest in quality companies when he sees short-term catalysts. In general, he would like to hold a stock for one-to-two years, and looks for about 20% upside potential.”

The Aberdeen fund has a concentrated portfolio of about 37 companies whereas the Henderson fund typically holds a portfolio of 50-55 stocks.

Allocation also differs. The Aberdeen fund is biased towards consumer-related stocks and the Henderson fund has a higher exposure to the industrial sector. 

According to Ng, the Henderson manager is positive on companies that are benefiting from the weakening yen, rising demand from China and the internet gaming industry.

A snapshot of portfolio allocation:



Aberdeen fund

Henderson fund

Top sectors

Consumer goods       27.8%

Industrials                  19.7%

Healthcare                  15.7%

Industrials                             32.1%

Consumer Discretionary       24.7%    

Information technology          9.8%

Top holdings

Pigeon Corporation     5.8%

Amada Company         5.1%

Kansai Paint                 4.8%

Leopalace 21                           4.7%

Kandenko                                4.2%

Hitachi Zosen                          4.1%                 

Performance review

Both funds enjoy the highest FE Crown Rating of 5 in the Hong Kong Japan small- and mid-cap equity funds category. (The FE Crown Rating ranks funds based on alpha, consistency and volatility).


Both funds have outperformed peers over one-, three- and five year periods to 28 February.






Aberdeen Global Japanese Smaller Companies A2 JPY in US




Henderson Horizon Japanese Smaller Companies A2 Acc JPY in US




Sector: HKM Equity
 Japan Small/Mid Cap TR in US




Index: Russell NO SM Financial Services GTR in US




Index: TSE Second Section TR in US





Furthermore, the volatility of the Aberdeen fund was lowest among peers over the past three and five years.

“The Aberdeen team tends to invest for long-term and does not react to short-term fluctuations.”

“But investors may need to be patient as [the investee companies] could underperform during an unfavorable period. They are likely to perform better over full business cycles.”

A look at calendar year returns:


Aberdeen fund

Henderson fund

Year-to-date 2015
















Manager review

Aberdeen Asset Management adopts a team-based approach in managing funds. 

According to Ng, the fund is primarily managed by its Tokyo-based five-member Japanese equity team, which is headed by Kwok Chern-Yeh.

In regards to the Henderson fund, Yun-Young Lee, who is based in Singapore, is managing the portfolio.  


“There are four fund managers on the Henderson Japan equity team, located in the UK and Singapore. Lee is the one who specializes in small-cap and long-only strategy.”



The annual investment management fees of the Aberdeen fund at 1.5% are higher than the Henderson fund fees of 1.2%.

However, the total expense ratio, or the ongoing charge of the Aberdeen fund is lower.

The TER for the Aberdeen fund was 1.69% for the year ended 30 September while the TER for the Henderson fund was 1.94% for the year ended 30 June. 

“Investors should also be aware that a 10% performance fee applies to the Henderson fund in a high water mark principle, which means the fund manager is entitled to a performance bonus when the net asset value per share is higher than its previous peak of the last performance period.”



According to Ng, both the Aberdeen and Henderson teams have demonstrated good stock selection skills. Both funds have been delivering strong and consistent performance over the past few years.  

“Both funds are good vehicles for investors to tap the potential of the Japanese small-cap market,” he said.

“The Aberdeen fund should deliver better downside protection when the market falls, whereas the Henderson fund should fare better during a short-term market rally.”

Ng said the Aberdeen fund should suit investors who are willing to invest into the market with a long-term investment horizon. By comparison, the Henderson fund may be the better product for investors making shorter-term tactical bets.



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