Martin Gilbert is the cofounder and CEO of Aberdeen Asset
Management, a $385 billion UK-based money manager.
The fund giant specializes in equities, fixed
income, alternatives and property.
announced a merger with UK peer Standard Life, in a deal that
would create a group with a combined £581 billion ($750 billion)
in assets under management. Gilbert is due to be co-CEO of the
Business Insider sat down with Gilbert on Monday May 8, and
what’s going on in the economy,
Trump’s economic policies, and the state of the active management
This interview has been edited for clarity and
Business Insider: What is your impression
of the US economic landscape right now?
Martin Gilbert: I think the economy in the US
has surprised. The old adage is that if America sneezes, the rest
of the world catches a cold. If the US economy does well, the
global economy will do well. Trump probably has all the right
policies. Whether he can get them through the House and Senate is
a different matter. Confidence looks good here. The market looks
a bit high to me. Emerging markets look better value. The first
quarter is the first time we’ve really seen sentiment on emerging
markets turn, and markets go up and flows returning to EM.
BI: Aberdeen has a lot of assets invested
in emerging markets. What is going on there?
Gilbert: Emerging markets peaked in March 2013,
so for four years they’ve been out of fashion. We saw a bit of a
rise in the third quarter of last year, but that ground to a halt
after the Trump election. This quarter is the first where we’ve
seen sentiment improve, markets rise, flows back in to emerging
markets, so they definitely look like they are on the turn.
BI: What makes emerging markets so appealing?
Gilbert: I think the appeal for emerging markets
is about valuation. They’re significantly cheaper than developed
markets. Developed markets have had a good run, emerging markets
have been left behind. Markets such as India are doing extremely
well. The market is a bit high there, but generally they are
better value at the moment than developed market equities. That’s
even more pronounced in the credit markets and government debt
markets, where, just to give an example, you can get a
dollar-denominated Indian government bond on a 6+% yield,
compared to the 1% to 2% for developed market government bonds.
There’s a lot of value in emerging markets debt at the
BI: Why is India so well positioned?
Gilbert: The most attractive market we see in
emerging markets is India. India, quietly, grows at 6%, 7% a
year. There’s great companies to invest in, whether that’s HDFC,
Unilever Hindustan, ICICI, and then in the bond markets, the
dollar-denominated government bonds compare very favorably with
developed market bonds. India is the real story in terms of
growth globally at the moment.
BI: Alot of people seem to be of the
opinion that US markets are too expensive. During
meeting of the Federal Open Market Committee, for example, a
number of Fed leaders said that this was a cause for
concern. Do you agree that US markets are too highly valued?
And what’s your advice to investors?
Gilbert: US markets do look high at the moment,
and it’s probably just the wall of money going into equities.
Mainly that’s because of course cash is paying so little,
government bonds are paying less of a yield. We even get the
situation where credit for industrial companies can often be
priced at less than the dividend yield on the ordinary share,
which is really unprecedented. These historically low interest
rates have led to higher valuations in stock markets than we’ve
seen for many, many years. As to what to do with that,
I think you’ve just got to hold through the markets, choose good
companies, good stocks that yield a reasonable amount, and hold
BI: Markets haven’t really moved a great
deal of late. Are investors
Gilbert: I think they always say the bull
markets climb a wall of fear, and the time to be worried is when
complacency creeps into that markets. We haven’t seen it yet, but
if it does come that is the time to be cautious about stock
Getty Images / Kiyoshi Ota
BI: And how do you measure that
Gilbert: I think the sign of complacency in the
stock market is when people don’t worry. At the moment, everyone
worries about everything. They worry about geopolitical risk,
about political risk, they worry that the markets are too high.
The time to really worry is when everyone thinks that markets are
going up and everything is going really well.
BI: You said that Trump probably
has all the right policies. What is he getting right on the
Gilbert: I think the reason that the Trump
economic agenda is beneficial is, he is doing the right things.
He wants to see growth, he wants to see to lower taxes, he wants
to see this cash pile sitting outside the US return to the US.
All of these things I think will be good for the US economy, and
as I’ve said, if the US economy grows, the global economy
BI: In February you penned an article
decade to forget for savers.” What has made the past 10-years
such a bad time to save?
Gilbert: I think the last decade has been a very
difficult time for savers. They’ve had negative interest rates on
their cash, they’ve found it very hard to find investments that
are safe and give a reasonable yield. It has pushed more and more
savers into the stock market, which of course has fueled this
rise in the stock markets we’ve seen globally.
BI: People are living longer,
and they don’t have the ability to build up the necessary
amount of money to sustain themselves when they leave the
workforce. Some Wall Streeters are referring to this as a
retirement crisis. Is this a concern for you?
Gilbert: I think the retirement crisis globally
is a major problem. I think it’s especially prevalant in
countries such as Japan, where immigration is an issue. I
think the US is more shielded from it than most countries in
the world. It has a higher birth rate than Japan, immigration is
tolerated here unlike probably it is in Japan. I don’t think it’s
as big an issue in the US as it is elsewhere in the world.
BI: Is it going to be harder for
millennials to retire comfortably?
Gilbert: I think the issue that millennials have
is that the return on asset classes such as bonds, cash, are so
low now compared to the historical levels that it’s very
difficult for them to save enough to be able to retire
comfortably. If interest rates do trend back upwards, it may be
less of a problem going forward.
BI: Times have been tough for active
managers as money continue to pour into passive. What are your
thoughts on this trend?
Gilbert: I think the asset management industry,
especially in the US, is going through a pretty tough time. If
you talk to the CEO of a US asset manager, morale would be at a
low, even though stock markets are at almost record levels. It’s
this march of the passive, it’s eating into the flows of the
active asset managers. It’s especially prevalent in US large cap,
compared to say emerging market equities. It’s really leading
them to think about what they do with their business models.
BI: Warren Buffett has said anyone who gives
their money to someone to manage is basically
throwing money away because they can park it in low-cost
indexes. As an asset manager, how do you defend yourself against
these sort of criticisms?
Gilbert: I think for some investors, just buying
an index fund is the right way to go. Good active fund managers
can outperform indices consistently, so if you do find the right
active fund manager it’s clearly better than a passive fund. In
areas like US large cap, which are becoming more and more
commoditized, even the Warren Buffett’s of this world would buy
an active fund rather than passive.
BI: Where does it make sense to invest in active
Gilbert: It still makes sense to invest with
active fund managers in areas like emerging market equities,
global equities, Asian equities, emerging market debt. Any
of these areas, there is still huge scope to outperform because
of the inefficiencies in these markets. An example would be,
you could underweight Russia, overweight India, or underweight
India, overweight China. There’s a huge asset allocation
opportunities, and huge opportunities in stock picking because
the markets are relatively inefficient compared to the very
efficient large cap markets.
BI: How do active managers fight back?
Gilbert: Asset management CEOs globally are
looking at their business models. They’re looking at costs,
they’re looking at making their businesses more efficient,
because they’re seeing revenues under pressure all over the
BI: Is the problem that there are just too
many asset managers?
Gilbert: I think there are probably too many
asset management companies in the world, and I think the place to
be is either big or small. The area where it is probably more
difficult to be is in the middle ground, where you’ve got that
cost of regulation, you’ve got the cost of buying your own
research, you’ve got all the costs of running an asset management
company without the benefits of a big income producing asset.
BI: How does technology fit in to that,
especially in terms of using technology to help pick stocks?
Gilbert: I think there is a place for using
technology and big data in stock picking. I don’t think it should
replace what you actually do in stock picking. I think you should
still do your fundamental analysis, but you should use big data
to make you a better stock picker
BI: Hedge funds have probably be faring the
worst of all asset managers. Are there too many hedge funds, too?
Gilbert: I think there are probably too many
hedge fund managers in the world, as well as active fund
managers. The hedge fund industry is very efficient. We see a lot
of hedge funds open and a lot close. It’s very binary. You either
succeed or fail in the hedge fund world. If you succeed, the
amount the managers make it beyond most people’s wildest dreams