Aberdeen Global - Hozam Plaza

World Smaller CompaniesFor the period 22 August 2012 to 30 September 2012Commencement of FundThe Fund was launched in the year ended 30 September 2012. The firstnet asset value (NAV) calculation for the Fund was 22 August 2012.PerformanceFor the period 22 August 2012 to 30 September 2012, the value of theWorld Smaller Companies – A Accumulation shares increased by 7.38%compared to an increase of 3.15% in the benchmark, the MSCI WorldSmall Cap Index.Source: Lipper, Basis: total return, NAV to NAV, net of annual charges, gross incomereinvested, USD.Manager’s reviewGlobal small cap equities rose during the review period andoutperformed their large cap counterparts. Efforts by central banks inthe US, Europe and Japan to stimulate the global economy boostedmarkets significantly, but gains were pared following weak data releasesacross many regions. Asian manufacturing activity and exporters,including Japan and China, suffered from weakness in external demandparticularly from the West. Second-quarter GDP growth in the US wasdowngraded to 1.3% owing to downward revisions in consumerspending and farm inventories. While the August unemployment rateimproved, the increase in payrolls did not meet expectations. Eurozonemanufacturing shrank, while retail sales also declined owing to risingunemployment, which hit a record, and deteriorating sentiment. In viewof the bleak economic environment, the European Central Bank keptinterest rates unchanged, although inflation rose for the first time in 11months in August, owing to rising fuel and transport costs. To reflectthe worsening creditworthiness of its biggest members, Moody’s cutthe European Union’s outlook to negative.Portfolio reviewThe Fund’s outperformance was largely driven by holdings in thefinancials sector, where National Societe Generale Bank was the topcontributor to relative performance. The Egyptian lender’s sharesrallied after Qatari bank QNB expressed interest in buying it fromparent Societe Generale. Holding Bank of the Philippine Islands alsoboosted the Fund, which gained after its venture BPI Globe Bankoupgraded its loan growth forecasts. Other main contributors includedthe UK’s Dechra Pharmaceuticals, which posted better full-year resultsled by new product launches and acquisitions. As well, Japanese snackmaker Calbee was boosted by improved June-quarter profits, thanksto higher sales and cost cuts.Against this, holdings in the telecommunications and materials sectorspared gains. Hong Kong-listed Asia Satellite Telecommunications andBritish-based polymer producer Victrex corrected following a periodof solid performance. Other detractors included Japanese cosmeticmanufacturer Dr Ci:Labo, which suffered from weaker-than-expectedfull-year results, while Swiss chocolate maker Barry Callebaut wasweighed down by higher cocoa prices.In portfolio activity, we introduced Spanish food casing maker Viscofan,owing to the strength of its business and healthy growth outlook.OutlookWhile recent stimulus efforts by major central banks may have liftedmarkets, these stop-gap measures appear to succeed only in boostingshort-term sentiment and inflating asset prices, instead of providingviable long-term solutions. Evidently, central bank policies onlycontribute to half of the equation, with the other half dependent ongovernment spending via fiscal policies. At present, we remain waryof several events, including the looming “fiscal cliff” in the US and thepossibility of a Chinese hard landing, which will have a dire impact onexport-dependent economies. On the corporate front, the earningsoutlook appears challenging. As such, we maintain a cautious stance.204 Aberdeen Global - World Smaller Companies