Aberdeen Diversified Income & Growth 30 September 2020
Disclosure – Non-substantive Research
This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. With this commentary, Kepler Partners LLP does not intend to influence your investment firm's behaviour.
Aberdeen Diversified Income & Growth (ADIG) targets a total portfolio return of LIBOR plus 5.5 per cent per annum (net of fees) over rolling five-year periods. It invests via funds and direct holdings in a portfolio of equities, bonds and alternatives. Equities and bonds make up a very small proportion of the portfolio, though, with the portfolio having major allocations to asset backed securities, infrastructure, property and emerging market bonds (the latter through a portfolio of directly held securities). There are also allocations to loans, private equity and other opportunities, including within the listed closed-ended fund space. The aim is to provide access to strategies which are often not available to the retail investor and often available only to institutions. Unlisted investments are expected to make up around 40% of the portfolio.
ADIG offers a generous historic yield of 5.8%, paid quarterly. With almost two years’ dividends in reserve, the board is in a strong position to maintain or grow its income even if some underlying investments do not generate the revenue they did pre-Covid. We think these reserves could be a highly attractive feature considering the current environment and the pressure on dividends.
The managers are Mike Brooks and Tony Foster. Mike is head of diversified multi-asset strategies. Mike joined Aberdeen in 2015 from Baillie Gifford where he was a manager on the Diversified Growth team, having co-founded the Diversified Growth strategy at Baillie Gifford in 2008. Tony is a senior investment manager on the Diversified Multi-Asset Team. He specialises in closed-ended funds for ADIG and other internal clients. Tony previously ran a fund of investment trusts at SWIP.
Mike and Tony took over in February 2017 when Aberdeen won the management contract from BlackRock. To the end of August NAV total return was up 3.9% compared to a target return of 22.5%. ADIG has not escaped the impact of the coronavirus pandemic, with its NAV total return impacted negatively by its ABS holdings, listed equities and some special opportunities such as aircraft leasing and litigation financing.
The share trade on a discount of 19%, which compares to a 15.6% AIC Flexible Sector average.