AEMC.L Regulatory News (AEMC)

Aberdeen Emerging Markets Investment Company Limited

Looking for the best-of-breed emerging market funds

Annual Financial Results

31 October 2020

"Aberdeen Emerging Markets Investment Company Limited ("AEMC" or the "Company") is a closed-end investment company with its Ordinary shares listed on the Premium Segment of the London Stock Exchange. It offers investors exposure to some of the best investment talent within the global emerging markets of Asia, Eastern Europe, Africa and Latin America."

1 Performance figures stated above include reinvestment of dividends on the ex-date

2 See note 14 in the Notes to these Financial Statements for basis of calculation

3 Dividends declared for the year in which they were earned

4 Definitions of these Alternative Performance Measures ('APMs') together with how these have been calculated can be found below

For the Year Ended 31 October 2020

Overview

I am pleased to report that over the year to 31 October 2020 the Company's net asset value ("NAV") total return per Ordinary share was 8.9%. This compares favourably with a total return of 8.2% from the Company's benchmark, the MSCI Emerging Markets Net Total Return Index (in sterling terms), and reflects a significant recovery following the fall in the NAV of more than 11% for the first half of the financial year.

The Ordinary share price total return for the year was 12.2%, as the discount to NAV at which the Company's shares trade narrowed slightly, to 13.4%, from 15.4% at the start of the financial year. At the time of writing, the discount to NAV stands at 13.0%.

The year under review was dominated by the global impact of the COVID-19 pandemic which caused significant volatility in equity markets. The Company's benchmark index suffered a peak to trough decline of just over 25% between late January and March 2020 as the global spread of the virus led most countries to introduce social and economic restrictions which severely impacted economic activity, leading to a deep global recession. In a number of emerging markets, the weak performance was compounded by commodity price declines and the associated impact of these on currencies.

In response to the crisis, governments and central banks around the world, including those in virtually all emerging markets, implemented unprecedented fiscal and monetary stimulus measures to support their economies. This helped rebuild investor confidence; during the period from late March 2020 until the end of the financial year, the benchmark index rose by more than 31%.

Within emerging markets, Asia, and in particular China, continued to outperform as aggressive measures were introduced to control the spread of the virus, enabling an earlier easing of the lockdown and resumption of economic activity than in many other parts of the world. Latin America, however, was the worst performing emerging market region during the year, declining by more than 33% as the spread of the virus accentuated the economic challenges for the region.

Fund selection contributed strongly to the outperformance during the year, with notable contributions from certain funds invested in China and South Korea. The same was also true in Eastern Europe. However, within these regions, the portfolio's underweight exposure to China and Taiwan, and overweight exposure to Russia and Columbia, detracted from an asset allocation point of view. Whilst the portfolio remains less exposed to China than the benchmark, we would emphasise that it still constitutes over a third of the portfolio in absolute terms.

The Company's performance also benefited from discount narrowing within the closed end fund sector during the latter part of the year, as investor sentiment improved compared to the earlier part of the year.

A more detailed explanation of the year's performance and portfolio activity during the year is provided in the Investment Manager's Report.

Dividends

The Board believes that one of the attractions of the Company is its policy of making quarterly distributions by way of dividends to be funded from a combination of income and capital. This policy has been adopted by the Board in the belief that the level of dividends paid by emerging market companies over the long term is an increasingly important attraction for investors seeking to invest in the emerging market asset class.

Three interim dividends, each of 5.5p per share, were paid on 27 March, 26 June and 25 September 2020 and, since the year end, a fourth and final interim dividend in respect of the year of 5.5p per share was paid on 18 December 2020. This brings the total dividends for the year to 22.0p per share.

For future years, the Board intends to continue to pay interim dividends on a quarterly basis and it is anticipated that the total dividends for the year ending 31 October 2021 will be no less than 23.0p per share, a 4.5% increase on the level of dividends paid last year, representing a yield of 3% based on the share price of 752.5p as at 16 February 2021. Accordingly, the Board declares a first interim dividend for the current financial year of 5.75p per share, which will be paid on 26 March 2021 to shareholders on the register on 26 February 2021.

The Board will put a resolution to shareholders at the AGM in respect of its policy to declare four interim dividends each year, and will include this as a resolution at future AGMs. The payment of any dividends will be subject to compliance with all necessary regulatory obligations of the Company, including the Guernsey Law solvency test, compliance with its loan covenants, and will also be subject to the Company retaining sufficient cash for its working capital requirements.

Loan Facility and Gearing

The Company has a £25 million multi-currency revolving loan facility which is due to mature on 26 March 2021. The Board believes that the use of gearing, which is one of the advantages of a closed ended structure, within pre-determined ranges and at times when the Investment Manager sees attractive investment opportunities, is beneficial to the longer term performance of the Company.

The loan was fully drawn for part of the year, but in light of the Investment's Manager's cautious view of markets, half of the facility was repaid leaving £12.5 million drawn down at the year end. Gearing, net of cash, at the year end was 1.6% compared to 8.0% at the start of the year. Since the end of the year the loan has been drawn down in full.

The Company has commenced discussions with its bankers and the Board expects to renew the facility on similar terms when it matures in March this year.

Share Buy Backs

The Company did not buy back any shares during the year.

The Board's policy in relation to discount control is that it considers it desirable that the Company's shares do not trade at a price which, on average, represents a discount that is out of line with the Company's direct peer group. To assist the Board in taking action to deal with a material and sustained deviation in the Company's discount from its peer group, it seeks authority from Shareholders annually to buy back shares. Shares may be repurchased when, in the opinion of the Board and taking into account factors such as market conditions and the discounts of comparable companies, the Company's discount is higher than desired and shares are available to purchase in the market. The Board is of the view that the principal purpose of share repurchases is to enhance net asset value for remaining shareholders, although it may also assist in addressing the imbalance between the supply of and demand for the Company's shares and thereby reduce the scale and volatility of the discount at which the shares trade in relation to the underlying net asset value.

Shares in Public Hands

The Board has previously announced that the number of Ordinary shares which are deemed by the Listing Rules to be held in public hands is below the minimum 25% threshold. The Listing Rules provide that shares are not considered to be held in public hands ("free float") if they are held by persons (or persons in the same group or persons acting in concert) who have an interest in 5% or more of a listed company's share capital, as well as shares held by directors of a listed company.

In September 2019, the Company announced that the FCA had agreed to modify the relevant Listing Rule for the period up until 21 August 2020 to permit a reduced level of shares in public hands, even though the level was below 25%. Significant efforts have subsequently been made by the Company and its advisers to increase the shares in public hands through additional marketing efforts, but progress has been hindered by the emergence of the COVID-19 pandemic and lockdown measures that have been adopted. Accordingly, the Company has sought and received the agreement of the FCA to extend the period of the Listing Rule modification to 21 August 2021. During this time the Company will continue to monitor its share register, which currently shows a free float of approximately 16%, keep the FCA informed of any relevant developments and work towards restoring the number of shares in public hands.

Compliance with US Executive Order 13959

Following the US Presidential Executive Order 13959 dated 12 November 2020, which prohibits US Persons from purchasing "publicly traded securities" of certain 35 Chinese companies identified as Communist Chinese Military Companies, the Company can confirm that it has no direct investments in any of these 35 companies. It does, however, have indirect exposure via a number of its holdings. Following analysis of the Company's holdings by the Manager, this indirect exposure only amounts to approximately 0.6% of the Company's net asset value. The Company does not expect to have any exposure (direct or indirect) to these 35 companies by 11 November 2021.

Updates on this matter will be provided through the Company's website.

Annual General Meeting ("AGM")

The AGM will be held at 12 noon on 20 April 2021 at 11 New Street, St Peter Port, Guernsey, GY1 2PF. We would encourage all shareholders to complete and return the proxy form enclosed with the Annual Report so as to ensure that your votes are represented at the meeting. If you hold your shares in the Company via a share plan or a platform and would like to attend and/or vote at the AGM, then you will need to make arrangements with the administrator of your share plan or platform. For this purpose, investors who hold their shares in the Company via the Aberdeen Standard Investments Plan for Children, Share Plan or ISA will find a Letter of Direction enclosed. Shareholders are encouraged to complete and return the Letter of Direction in accordance with the instructions printed thereon.

The Board has been considering how best to deal with the potential impact of the COVID-19 pandemic on arrangements for the Company's AGM. The Company is required by law to hold an AGM and the Board has been working on the basis that the Company's AGM would be held on 20 April 2021 as previously scheduled. However, given the possibility that some measure of restriction on public gatherings and maintaining social distancing may remain in place in April, the Board will give further consideration to the format of the AGM for this year. If the guidance on public gatherings remains in place in April, shareholders are strongly discouraged from attending the meeting and indeed entry may be refused if the law and/or Government guidance so requires. In such circumstances, arrangements will be made by the Company to ensure that the minimum number of shareholders required to form a quorum will attend the meeting in order that the meeting may proceed and the business concluded.

In light of the developing situation, shareholders are encouraged to raise any questions in advance of the AGM with the Manager at aberdeen.emerging@aberdeenstandard.com (please include 'AEMC AGM' in the subject heading). Questions must be received by 12 noon on 16 April 2021. Any questions received will be replied to by either the Manager or Board via the Company Secretary.

Further information will be included on the Company's website (www.aberdeenemergingmarkets.co.uk) in advance of the AGM.

The Notice of the Meeting is contained on pages 80 to 82 of the Annual Report.

Board Composition

As previously announced, having served as a Director since the Company's Reconstruction in 2009, John Hawkins will retire at the AGM on 20 April 2021. On behalf of the Board I would like to thank John for his significant contribution to the Company during his time as a Director. He shall be much missed and I wish him well for the future.

Outlook

On the whole, emerging markets have been less impacted by the COVID-19 pandemic than most commentators feared at the outset, and there is evidence to suggest that emerging market economies will recover faster than developed markets and emerge less indebted. The recent weakening of the US Dollar provides a welcome tailwind for emerging market currencies, which should result in more interest from investors in emerging markets in the years ahead than they have received in the recent past.

The Board continues to believe that the Company's approach of investing through a portfolio of specialist funds, often at a discount to NAV, provides an attractive means for investors to benefit from these positive short term developments as well as capturing the longer term opportunities presented by this diverse asset class.

Strategic Report

The Company's investment objective is to achieve consistent returns for shareholders in excess of the MSCI Emerging Markets Net Total Return Index in sterling terms (the "Benchmark").

Investment Manager's Report

Market Environment and the Impact of COVID-19

While the global impact of the COVID-19 pandemic dominated the year under review and caused significant volatility, emerging market equities recorded a gain of 8.2% for the year, a remarkable outcome under the circumstances.

After a benign start to the year, by late March 2020 global economies and markets found themselves in the depths of the COVID-19 induced panic. The emerging markets index suffered a peak to trough decline of just over 25% between late January 2020 and its March 2020 low as the global spread of COVID-19 led most countries to introduce social and economic restrictions which severely impacted economic activity, prompting the deepest global recession since World War II. In a number of emerging markets, the weak performance was compounded by commodity price declines and the associated impact of this on currencies. In response to the crisis, governments and central banks around the world, including virtually all emerging markets, implemented unprecedented fiscal and monetary stimulus measures with the aim of ameliorating the worst of the economic impact. These measures spurred a rebound in investor sentiment and over the remainder of the period the emerging markets index rallied sharply, gaining 31.9% between late March and the end of October.

In general, the impact of the pandemic has been to accelerate pre-existing trends in emerging markets, as in other asset classes. Thus, the underperformers of recent years saw their margin of underperformance expand, while the relative "winners" continued to deliver impressive returns. This was evident in the "melt-up" of growth companies compared to those in traditional value / cyclical sectors, with the former outperforming the latter by almost 35% over the year (MSCI Emerging Markets Growth Index +25.9%, MSCI Emerging Markets Value Index -8.5%). This represents the largest deviance between the two measures over a twelve month period since their inception in 2000. Asia continued to outperform the rest of emerging markets and larger companies continued to outperform smaller ones. The benchmark saw further concentration at a country and a company level, with the top three largest constituent countries now comprising 67.8% (compared with 56.0% a year ago) and the 10 largest companies comprising 32.5% (compared with 23.2% a year ago).

Emerging Asia gained 20.1% in aggregate, largely as a consequence of the resilient performance of index heavyweight China. Despite being the epicenter of the COVID-19 outbreak, China implemented aggressive measures to control the spread of the coronavirus quickly and effectively, enabling a gradual resumption of economic activity as the lockdown was eased earlier than in many other parts of the world. Corporate earnings data was robust and allowed the market to shrug off concerns over ongoing friction with the US, while local sentiment was buoyed by state media reports early in July that suggested local equities were ready for a "healthy bull market". Within China, as elsewhere, the market was led by those stocks seen as beneficiaries of the pandemic. Many of these are largely "online" businesses and thus those companies active in e-commerce, social media and electronic gaming were amongst the biggest gainers. Such stocks included Alibaba Group and Tencent Holdings, the two largest stocks in the Chinese index, which gained 72.4% and 86.7% respectively and were responsible for almost two thirds of that market's gain. The other large North Asian markets of South Korea and Taiwan also benefitted from being "first in, first out" as well managed pandemic response plans helped both countries deal more efficiently with the crisis than was the case in many other parts of the world. Taiwan gained 26.4% over the year while South Korean equities rose by 14.1% with both markets also benefitting from the positive sentiment towards technology stocks. The impacts of the pandemic were felt more keenly in the rest of Asia and that was reflected in stock market performance. Despite a sharp rebound in the second half of the period, Indian equities declined 2.6% with performance in the earlier part of the period hampered by the perception of being behind the curve in its response to the coronavirus. As well as coping with a shutdown of its tourism sector, a major source of income and employment, Thailand ended the year in a State of Emergency, imposed against a backdrop of pro-democracy protests demanding the removal of the Prime Minister. The market was the weakest performer in the region, falling 30.8%. Indonesia also fared poorly, losing 21.2%, although there was some good news late in the period as parliament approved the Omnibus Law - a broad based reform aimed at simplifying labour regulations, licensing procedures and improving the ease of doing business.

In Eastern Europe, the Middle East and Africa, the regional index fell by 18.0% and all constituent markets ended the period in negative territory. The Russian market fell by 29.3% which reflected a sharp decline in energy stocks over the period. The price of Brent crude fell by 37.2% in sterling terms as the pandemic depressed demand in a world where renewable energy continues to gain traction. Despite this, Saudi Arabia (-0.9%), Qatar (-3.4%) and the United Arab Emirates (-11.3%) all proved relatively defensive, with measures to contain the coronavirus within their populations proving effective and US dollar pegs serving to avoid the currency declines seen in oil producing countries with floating currencies. The South African market fell 13.3%, despite a 36.4% gain from index heavyweight Naspers, which derives the majority of its value from its holding in Tencent Holdings. In Eastern Europe, equity markets in Hungary (-30.3%), the Czech Republic (-25.7%) and Poland (-37.3%) were all significantly impacted by the pandemic. Turkey was also amongst the weaker markets, declining by 33.3%, largely as a consequence of currency weakness.

Latin America was the worst performing emerging market region, declining 33.2% as the spread of COVID-19 accentuated the economic challenges for the region, notably through the weakness in commodity prices1 and the resulting impact on currencies. Brazil, the largest market in the region, lost 38.1% as the real depreciated by over 30% against sterling. Chilean equities fell 28.1% against a backdrop of macro and political headwinds while Mexican stocks lost 21.4%.

Fund Performance

During the financial year, the Company's net asset value ("NAV") per share total return was 8.9% while the MSCI Emerging Markets Net total return index (the "Benchmark") returned 8.2%. The ordinary share price total return was 12.2%, as the discount to NAV at which the Company's ordinary shares trade narrowed to 13.4% from 15.4% at the start of the financial year.

The Company's NAV total return for the year was 0.7% ahead of the Benchmark. Attribution analysis follows in Table 1 below and shows that underlying holdings, in general, outperformed their benchmarks. Discount narrowing on closed end funds also made a positive contribution while asset allocation by country was detrimental to relative performance.

In Asia, the Company's investments in Korea performed strongly, with Weiss Korea Opportunity Fund (NAV +39.6%) and Korea Value Strategy Fund (+54.7%) both significantly outperforming the broader market (MSCI Korea +14.1%). The managers of both funds invest with a strong value bias, with Weiss expressing this through investments in deeply discounted preferred shares. In China, Fidelity China Special Situations performed exceptionally (NAV +61.3%), with strong stock selection combining with diligent use of gearing and selected exposure to private companies, as permitted by the fund's closed end structure. Elsewhere in Asia, Thai specialist, Ton Poh Fund (-1.6%) had a strong year in relative terms with its portfolio of small to mid-sized growth stocks faring well in a challenging environment where the local index fell by close to 31%, while Schroder AsiaPacific Fund also outperformed (NAV +24.1% compared with MSCI Asia Pacific Ex Japan +11.8%) through good stock selection within communication services and financials. In Eastern Europe, the long-standing investment in Baring Vostok (private equity in Russian and former CIS states) enjoyed a burst of portfolio activity towards the year end with top holding Kaspi (which operates the largest payments, marketplace and financial technology ecosystem in Kazakhstan) listing in London and delivering a significant uplift to performance. The fund's share price rose by 14.8% over the year (vs MSCI Russia -29.3%). Emerging Europe (ex Russia) specialist Avaron Emerging Europe Fund reinforced its long track record of low downside capture with NAV -21.4% compared to -34.8% for the MSCI Eastern Europe Ex Russia Index. Within the Company's frontier market allocation, Romanian holding Fondul Proprietatea delivered another period of good absolute and relative returns (NAV +7.6%).

Relative detractors included dividend focused strategies in Asia (Schroder Oriental Income Fund Limited NAV +1.3%, and Aberdeen Asian Income Fund NAV -0.8%) as dividend payments were cut in the underlying portfolio companies (we estimate by around 15% over the year) and dominant growth companies in the region (which tend not to feature in these portfolios given their tendency to not pay dividends) powered ahead. The holding in Neuberger Berman - China Equity Fund (+21.1%) detracted from relative performance as its focus on quality growth at reasonable valuations led it to be underexposed to some of the largest contributors to the market's gain. Schroder International Selection Taiwanese Equity Fund (+19.4%) failed to match its benchmark (MSCI Taiwan +26.4%) on account of a structural underweight in Taiwan Semiconductor Manufacturing Company, which rallied by close to 60% over the period and represented 45.1% of the Taiwanese Index at the end of the year.

Asset allocation detracted from relative performance. This was largely a consequence of the Company's underweight positioning in China and Taiwan, which outperformed the broad emerging markets index by 26.9% and 18.2% respectively. Despite the Company having more than 40% of NAV invested in these two markets, this reflects an underweight position relative to a Benchmark in which a combination of China and Taiwan now represents close to 56%. Elsewhere, overweight positions in Russia and Colombia detracted while major underweights in South Africa, Brazil, Mexico, India and Malaysia contributed positively.

Closed End Fund discounts contributed to the Company's outperformance with discount narrowing in the latter stages of the year reflecting a general improvement in investor sentiment from the depths of the COVID-19 crisis. The largest contributors were Fidelity China Special Situations and Gulf Investment Fund; the former saw its discount narrow by over 10% over the year to trade at parity by the end of period while the latter saw its discount narrow to 4.5% ahead of the publication of details of a full exit opportunity. For the period as a whole, the weighted average discount to NAV of the Company's closed end holdings narrowed from 10.3% to 8.5%.

* The above analysis has been prepared on a total return basis.

Portfolio Positioning

The composition of the portfolio by vehicle type is shown below. The most significant change over the period was that the Company moved from being 107.8% invested at the start of the year to just 101.2% of net assets by the end of the financial year. Gearing was reduced towards the end of April 2020 following discussions with the Company's Directors and an agreement that it was prudent to adopt a slightly more cautious stance given the wide range of possible pandemic outcomes at that time. The allocation of net assets to open ended funds declined by around 5% during the year, while closed end fund exposure fell by just over 1%.

The Company's geographic allocation is shown below. On a regional basis the most notable change was an 8.2% increase in exposure to Asia which resulted from a combination of market performance and investment activity. Active changes reflected the belief that the pandemic likely delayed the recovery in economic performance and thus sentiment towards non-Asian markets for which the Company had been positioned coming into 2020.

China's weight increased to 38.2%, reflecting the country's resilient performance during the period and the initiation of a 5.0% position in the Neuberger Berman China Bond Fund at the end of June 2020. From a top down perspective, we view China favourably but are mindful of the risks associated with having such a large proportion of the Company's portfolio invested in a single country. We believe that the China Bond Fund allows us to add to the long term opportunity presented by China's capital markets but in a more risk-aware manner than adding to the fund's already substantial equity exposure. In the second half of the year, we trimmed sizeable positions in the Aberdeen Standard China A Share Equity Fund and Fidelity China Special Situations, both of which had performed admirably since the market lows in March 2020.

Exposure to South Korea increased to 13.7%, reflecting strong market returns and significant outperformance from the Company's dedicated investments in that market. Taiwan's weighting declined to 8.1% despite the market's outperformance as a result of an exit from a small holding in Taiwan Fund in late 2019 and a scaling back of the position in Schroder's Taiwanese Equity Fund. India saw a reduction in its allocation to 4.8%, reflecting a tender offer and subsequent exit from JPMorgan Indian Investment Trust. Indonesia fell to just 0.8% as redemption proceeds were received from Komodo Fund, which decided to liquidate during the year.

The increase in Asia's allocation was, in large part, at the expense of Latin America, where the Company moved from an overweight to an underweight position over the year. Besides market performance, the decline was driven by the redemption of the Company's position in Brown Advisory Latin American Fund which was completed in August 2020. This was driven by a combination of asset allocation and manager selection considerations, with Latin American markets remaining challenged on a number of fronts (currency weakness, unsettling politics, relatively poor response to COVID-19) while the underlying strategy (which has a focus on consumer companies) had failed to deliver on a relative basis for several years.

The allocation to the Europe, Middle East and Africa region also fell over the year. Partial redemptions from a number of regional vehicles (Avaron Emerging Europe Fund, QIC GCC Equity Fund and Laurium Limpopo in Africa) were utilised to pay down gearing in April 2020, while we also trimmed exposure to Russia through exiting a small holding in JP Morgan Russian Securities and via a tender offer from Baring Vostok. We took profits on Fondul Proprietatea while the company also continued to distribute capital back to shareholders by way of dividends and tender offers. In the latter months of the year, Turkey began to screen attractively, justifying increased exposure through an exchange traded fund. South Africa remained a very significant underweight throughout the period with an already challenging macroeconomic backdrop being compounded by the impact of COVID-19.

We continue to believe that many frontier markets, whilst increasingly marginalised and thus overlooked by most investors, are attractively valued and likely to deliver attractive returns for patient allocators of capital. At the end of the year, 12.5% of the Company's portfolio was allocated to frontier markets equities and fixed income. Towards the end of the period, we initiated a holding in BlackRock Frontiers Investment Trust, acquiring shares at a discount to NAV in excess of 6%, an attractive entry point given the low valuation of the portfolio (including a dividend yield of over 5%) and the company's tendency to trade around net asset value. Investors are given the opportunity to exit all or part of their investment at NAV less cost every five years, with the next such opportunity in early 2021. Around a third of the Company's frontier allocation remains in the in-house managed Aberdeen Standard Frontier Markets Bond Fund, which offers the potential for good absolute returns from a portfolio of predominantly US dollar denominated sovereign bonds issued by a wide range of frontier countries. At the end of October 2020, this portfolio had a yield to maturity of 9.9%, representing a 5.0% spread over mainstream emerging market hard currency debt, a pricing differential that, in our view, is unjustified by fundamentals. Underlying exposure is to countries as diverse as Ukraine, Ivory Coast and Kenya, bringing further diversification to the Company's portfolio.

The Company participated in several accretive corporate actions during the year. JP Morgan Indian Investment Trust completed a tender offer for 25% of shares in issue in February 2020. With a surprisingly low participation rate, there was substantial scaling-up and we exited 60% of the Company's position at a significant premium to the prevailing market price. The Company also benefitted from several modest tender offers in Romanian holding Fondul Proprietatea, selling stock at a premium to prevailing market levels each time. In late 2019, we also took advantage of a liquidity window provided by a share buyback by Russian private equity specialist Baring Vostok that was conducted at a price materially higher than it had traded at over prior months. The Company retains exposure to a number of closed end funds with the potential for future corporate activity through full exit opportunities (Gulf Investment Fund, BlackRock Frontiers Investment Trust, Weiss Korea Opportunity Fund), ongoing regular tenders (Fondul Proprietatea) or conditional tenders (BlackRock Latin American Investment Trust, Genesis Emerging Markets Fund).

The allocation to funds managed by Aberdeen Standard Investments increased from 11.9% to 17.5% of net assets during the year. A significant element of that is accounted for by positions in open ended funds investing in China A Shares (5.2%) and Frontier Market Bonds (4.2%) with the remainder spread across several closed end funds focussed on Asian equities. The use of in-house managed funds, on which there is no double charging of fees, is a valuable tool in making the Company as cost-effective as possible in an environment where this is increasingly a concern for investors. All investments in "in-house" products are subject to the same in-depth diligence as external funds and a rigorous conflicts of interest procedure.

We have discussed in past reports our desire to invest in a focused list of actively managed holdings run by talented investment teams across emerging and frontier markets, thus offering investors an attractive "one stop shop" in a complex and sprawling asset class. In addition, the payment of quarterly dividends from a combination of capital and income and use of gearing, all capture the benefits of the closed end fund structure. To these collective points, at the end of the year the portfolio was invested in 30 funds, with 92.0% of net assets being exposed to equities, 9.2% to fixed income, cash and other net assets of -1.2% and the Company's dividend yield was 3.6% per annum. We believe this is an attractive profile in the circumstances and one that should hold broad appeal.

OutlookEmerging markets have, over the last five years, quietly delivered strong returns for investors (MSCI Emerging Markets Index +74.4%), while at the same time remaining largely out of favour as an asset class. While 2020 has obviously presented many challenges, we believe it has also provided reasons to believe this spell of performance can continue, if not accelerate.

In aggregate, emerging markets have been less impacted by COVID-19 than most commentators feared at the outset of the pandemic. China, South Korea and Taiwan (collectively 60.0% of the Company's portfolio) obviously stand out in a global context as having benefitted from early and decisive measures to quell the spread of the coronavirus, whilst also having a healthy representation of growth companies on their exchanges (technology platforms in the case of China, and hardware in the case of Taiwan and South Korea). For China in particular, we believe 2020 will prove a year in which asset allocators finally overcame many of their fears (trade wars, growth concerns, sovereign and corporate governance) and began taking steps to more adequately reflect the importance of this market in their portfolios - the pandemic, perversely, having served as a positive catalyst for this.

Outside of these three markets, the COVID-19 experience has been more mixed, but one unifying factor is the more muted policy response employed by emerging market central banks. There is much evidence to suggest that emerging market economies will shrink less in 2020, bounce back faster in 2021 and emerge less indebted than developed markets. The likelihood of vaccines being rolled out in 2021 has already been reflected in improved performance in the likes of Brazil, South Africa and India.

The combination of the US congress coming under the control of the Democratic Party, the roll out of vaccines, the accommodative stance of the Federal Reserve (with record levels of debt and low interest rates likely to prevail in the coming years) all suggest the US dollar will continue to weaken. At the same time, emerging equity and debt markets are amongst the few to still offer positive real yields, which are likely to attract capital back into the asset class to the benefit of emerging market currencies. The importance of this should not be underestimated, as can be seen in Chart 3 contained in the Annual Report, which shows quite clearly how long and painful the current cycle has been, whilst also reminding one of how lucrative the prior cycle was.

Many of the major beneficiaries of a decline in the US dollar are outside of the major North Asian economies, and thus we would caution against investors limiting their emerging market exposure to the obvious Asian economies at the expense of Eastern Europe, Latin America and frontier markets, all of which would benefit materially from the trends discussed above. In addition, a weaker US dollar has tended to favour smaller companies and "value" investments. We retain exposure to these unappreciated regions and themes based on fundamentals and future prospects, not recent past performance. Trying to time exactly when any rotation in leadership (by country, market capitalisation or sector) will take place is extremely challenging, as the dash to value following the announcement of the first vaccine highlights.

Risks to this "goldilocks" scenario for emerging markets include geopolitics (in China and Iran, for example), a disappointment in 2021 earnings (currently forecast to grow by 25-30% across emerging markets) and the interplay of this with valuations (a 15x aggregate emerging market forward price to earnings ratio offers less value than has been present in much of the recent past). The major risk we perceive in markets more generally is an earlier than expected withdrawal of the easing measures put in place to deal with the pandemic (higher US rates being the most obvious barometer of this). On this latter point, it is interesting to note that China has already begun tightening, making it the first country globally to do so.

Overall, we maintain a positive outlook. Since the end of the financial year, we have fully drawn the Company's revolving credit facility, taking the portfolio 4.7% geared as at 16 February 2021, with 96.9% of net assets being exposed to funds invested in equities, 7.8% in funds investing in fixed income and -4.7% in cash and other net assets. We believe this positioning differentiates the Company from many of its peers and leaves it well placed to reap rewards. We believe the current uptick in sentiment towards, and strong performance of, the asset class is justified and likely to continue.

Aberdeen Asset Managers Limited

18 February 2021

Portfolio

The above analysis has been prepared on a portfolio look-through basis.

Benchmark: MSCI Emerging Markets Net Total Return Index in sterling terms

Principal Risks, Emerging Risks and Uncertainties

Together with the issues discussed in the Chairman's Statement and the Investment Manager's Report, the Board considers that the main risks and uncertainties faced by the Company fall into the following categories:

(i) General Market Risks Associated with the Company's Investments

Changes in economic conditions, interest rates, foreign exchange rates and inflationary pressures, industry conditions, competition, political and diplomatic events, tax, environmental and other laws and other factors can substantially and either adversely or favourably affect the value of the securities in which the Company invests and, therefore, the Company's performance and prospects.

The Company's investments are subject to normal market fluctuations and the risks inherent in the purchase, holding or selling of securities, and there can be no assurance that appreciation in the value of those investments will occur. There can be no guarantee that any realisation of an investment will be on a basis which necessarily reflects the Company's valuation of that investment for the purposes of calculating the NAV.

The Company's investments, although not made into developed economies, are not entirely sheltered from the negative impact of economic slowdowns, decreasing consumer demands and credit shortages in such developed economies which, amongst other things, affects the demand for the products and services offered by the companies in which the Company directly or indirectly invests.

A proportion of the Company's portfolio may be held in cash or cash equivalent investments from time to time. Such proportion of the Company's assets will be out of the market and will not benefit from positive stock market movements but may give some protection against negative stock market movements.

(ii) Emerging Markets

The funds selected by the Investment Manager invest in emerging markets. Investing in emerging markets involves certain risks and special considerations not typically associated with investing in other more established economies or securities markets. In particular there may be: (a) the risk of nationalisation or expropriation of assets or confiscatory taxation; (b) social, economic and political uncertainty including war and revolution; (c) dependence on exports and the corresponding importance of international trade and commodities prices; (d) less liquidity of securities markets; (e) currency exchange rate fluctuations; (f) potentially higher rates of inflation (including hyper-inflation); (g) controls on foreign investment and limitations on repatriation of invested capital and a fund manager's ability to exchange local currencies for pounds sterling; (h) a higher degree of governmental involvement and control over the economies; (i) government decisions to discontinue support for economic reform programmes and imposition of centrally planned economies; (j) differences in auditing and financial reporting standards which may result in the unavailability of material information about economies and issuers; (k) less extensive regulatory oversight of securities markets; (l) longer settlement periods for securities transactions; (m) less stringent laws regarding the fiduciary duties of officers and directors and protection of investors; and (n) certain consequences regarding the maintenance of portfolio securities and cash with sub-custodians and securities depositories in developing markets.

(iii) Other Portfolio Specific Risks

(a) Small cap stocks

The underlying investee funds selected by the Investment Manager may have significant investments in smaller to medium sized companies of a less seasoned nature whose securities are traded in an "over-the-counter" market. These "secondary" securities often involve significantly greater risks than the securities of larger, better-known companies, due to shorter operating histories, potentially lower credit ratings and, if they are not listed companies, a potential lack of liquidity in their securities. As a result of lower liquidity and greater share price volatility of these "secondary" securities, there may be a disproportionate effect on the value of the investee funds and, indirectly, on the value of the Company's portfolio.

(b) Liquidity of the portfolio

The fact that a share is traded does not guarantee its liquidity and the Company's investments may be less liquid than other listed and publicly traded securities. The Company may invest in securities that are not readily tradable or may accumulate investment positions that represent a significant multiple of the normal trading volumes of an investment, which may make it difficult for the Company to sell its investments. Investors should not expect that the Company will necessarily be able to realise its investments within a period which they would otherwise regard as reasonable, and any such realisations that may be achieved may be at a considerably lower price than prevailing indicative market prices. The Company has a borrowing facility in place which may be utilised to assist in the management of liquidity. The borrowing facility is described later in this Directors' Report.

Liquidity of the portfolio is further discussed in note 17 to the financial statements.

(c) Foreign exchange risks

It is not the Company's present policy to engage in currency hedging. Accordingly, the movement of exchange rates between sterling and the other currencies in which the Company's investments are denominated or its borrowings are drawn down may have a material effect, unfavourable or favourable, on the returns otherwise experienced on the investments made by the Company.

Movements in the foreign exchange rate between sterling and the currency applicable to a particular shareholder may have an impact upon that shareholder's returns in their own currency of account.

The investment management of the Company has been delegated to the Company's Investment Manager. The Investment Manager's investment process takes into account the material risks associated with the Company's portfolio and the markets and holdings in which the Company is invested. The Board monitors the portfolio and the performance of the Investment Manager at regular Board meetings.

(iv) Internal Risks

Poor allocation of the Company's assets to both markets and investee funds by the Investment Manager, poor governance, compliance or administration, including poor controls over cyber security, could result in shareholders not making acceptable returns on their investment in the Company.

Management or mitigation of internal risks

The Board monitors the performance of the Manager and the other key service providers at regular Board meetings. The Manager provides reports to the Board on compliance matters and the Administrator provides reports to the Board on compliance and other administrative matters. The Board has established various committees to ensure that relevant governance matters are addressed by the Board.

The management or mitigation of internal risks is described in detail in the Corporate Governance Statement found in the Annual Report,

(v) Emerging Risks

Emerging risks are slow moving trends, innovations and shifts with potential consequence to a specific industry or sector in the long term. They can include movements in: demographics, economics, society, technological innovations, national policy and governance. The most significant risk which emerged during the year was the COVID-19 pandemic. The first case of the virus was identified in Wuhan, China, in December 2019 and continued to spread worldwide during 2020. The consequence of the virus has dramatically impacted public health and mobility, with a cascading effect on consumerism, the global financial markets and the future economic outlook.

Management or mitigation of emerging risks

A risk management register and associated risk heat map, providing a visual reflection of the Company's identified and emerging risks have been established to monitor and mitigate risks to the Company, with both a risk pre mitigation and risk post mitigation score determined, depending on the impact of the risk combined with the probability of the risk occurring.

Statement of Directors' Responsibilities

In Respect of the Annual Report and Accounts

The Directors are responsible for preparing the Annual Report and Accounts in accordance with applicable law and regulations.

Guernsey company law requires the Directors to prepare financial statements for each financial year. The Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards as issued by the IASB and applicable law.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of its profit or loss for that period. In preparing these financial statements, the directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates that are reasonable, relevant and reliable;

· state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;

· assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

· use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies (Guernsey) Law, 2008. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website, but not for the content of any information included on the website that has been prepared or issued by third parties. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Disclosure of Information to the Auditor

The Directors who held office at the date of approval of this Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditor is unaware; and each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

Responsibility Statement of the Directors in Respect of the Annual Report

We confirm that to the best of our knowledge:

· the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

· the Management Report (comprising the Chairman's Statement, the Investment Manager's Report and the Governance reports including the Directors' Report) includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

The Board considers that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

Helen GreenDirector

William CollinsDirector18 February 2021

Financial Statements

*Receipts from the disposal and purchase of investments have been classified as components of cash flow from operating activities because they form part of the Company's operating activities.

The notes form part of these financial statements.

14. Net asset value ("NAV") per Ordinary shareThe NAV per Ordinary share is based on net assets of £320,970,000 (2019: £304,877,000) divided by 45,965,159 (2019: 45,965,159) Ordinary shares in issue (excluding shares held in treasury) at the year end.

The table below is a reconciliation between the NAV per Ordinary share as announced on the London Stock Exchange and the NAV per Ordinary share disclosed in these financial statements.

15. Reconciliation of operating profit to net cash flow from operating activities