Fund Profile

Disclaimer

This is a non-independent marketing communication commissioned by abrdn. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
AEI offers investors an attractive yield and growing dividend…
Overview

Thomas Moore, manager of abrdn Equity Income (AEI), employs an index-agnostic strategy when investing in the UK market, focusing on selecting individual stocks that he believes are best placed to deliver an above-average income, as well as real growth in capital and income. This approach affords him greater flexibility to identify opportunities across the market, without being tied to specific index compositions.

Over the last 12 months, amid historically low valuations, Thomas has found a number of attractive opportunities across the market, identifying value in some of the UK’s larger businesses and increasing existing positions in holdings like Hargreaves Lansdown and Imperial Brands (see Portfolio). Additionally, his index-agnostic approach allows him to explore areas the more traditional equity income strategies might avoid, such as the lower-yielding companies further down the market cap scale. This is an area he’s found value in recently, initiating new investments in Assura and Energean.

AEI’s portfolio balances companies exhibiting high income with those with dividend growth potential, which has led to AEI offering investors a high Dividend yield of 7.3%. This is at a significant premium to the FTSE All-Share Index’s yield of 3.8% and ranks second highest within the AIC UK Equity Income sector. On top of a high yield, AEI has built up a strong track record of consistently growing its dividend over time, with 2023 marking its 23rd consecutive year of increases.

While Thomas’ strategy has proven highly effective at times, AEI’s Performance has lagged the index over the past five years, owing largely to a higher allocation to economically sensitive smaller companies and being more value tilted, given the high-income focus. However, a recent uptick in smaller company performance, driven by positive economic news, could suggest potential for performance to improve this year.

Kepler View

AEI stands out in the Equity Income sector for its high yield of 7.3%, while it has also displayed reliable consistency in increasing its Dividend year-on-year. Given Thomas’ smaller companies focus, AEI’s portfolio looks quite different to its peers. In our view, this differentiated strategy and track record of delivering an income to shareholders well above that of the sector and index average makes it both an attractive investment for high-income hunters, and potentially a complement to most traditional UK equity income portfolios.

AEI’s recent Performance has been encouraging. Positive economic news around the falling inflation story and reducing concerns around a recession, has alleviated some of the pressure mid-cap companies have been under over the last few years. This has resulted in an uptick in performance for smaller companies. Given AEI’s portfolio has a greater allocation to this part of the market compared to the peer group and index average, this has boosted performance. However, over the last five years, AEI’s total return Performance has been disappointing, largely due to its greater allocation to mid-caps. These businesses have suffered greatly from economic pressures like stubbornly high inflation, rising interest rates, and geopolitical tensions.

Looking ahead, we think that AEI’s current portfolio is well placed to benefit from improving market sentiment and strengthening economic conditions, which could lead to a turnaround in performance. In that case, we also see potential in AEI’s current 6.3% Discount, which is slightly wider than its five-year average, narrowing which could boost returns for investors.

Bull

  • Offers one of the highest yields in the sector, supported by strong reserves
  • Differentiated portfolio including a bias to small and mid-caps
  • Trust has recently reduced its charges

Bear

  • Exposure to small and medium-sized companies may bring more sensitivity to the UK economy
  • Use of gearing could magnify the gains but also the losses
  • Value-tilted portfolio could struggle in a growth driven environment
Continue to Portfolio

Fund History

09 Dec 2024 Monthly roundup: updates from the property sector, our income event and digital infra news
Jo, David and Ryan discuss the latest news, reviews and interviews in the investment trust world...
28 Nov 2024 abrdn Equity Income
Thomas Moore
Rewatch this event from November to hear from a range of managers that aim to provide investors with sustainable dividend income over time, alongside capital growth...
Watch Recording
17 Jul 2024 Fund Analysis
AEI offers investors an attractive yield and growing dividend…
26 Mar 2024 High yield UK stocks, with AEI Manager Thomas Moore – Podcast: Trust Issues #28
We talk managing value trap risks, opportunities in the UK, and the outlook for UK equities...
27 Dec 2023 Fund Analysis
AEI is delivering a sector-leading yield, with low valuations offering strong capital growth potential…
13 Dec 2023 In-come all ye faithful
Equity income could be a beneficiary of the higher interest environment, with trusts a good way to capture it…
11 Oct 2023 You say potato
Despite being in the same sector, investment trusts in the UK Equity Income sector could be more lowly correlated than you might think…
01 Feb 2023 Fund Analysis
AEI generates one of the highest yields in the sector without compromising growth potential…
01 Feb 2023 Go your own way
Our analysis shows that investment trusts offer better diversification for those seeking income from equities...
25 May 2022 Fund Analysis
A contrarian approach to UK equity income investing…
09 Feb 2022 The dividend dilemma
We examine the trade-off between earning a current high dividend yield and growing future dividends...
15 Dec 2021 Dividends in the time of corona
Investment trusts have proven their worth during the pandemic, delivering dividend growth despite the turmoil…
15 Sep 2021 Fund Analysis
ASEI has had a strong twelve months as the macro shifts in its favour...
19 May 2021 Results analysis: Aberdeen Standard Equity Income
ASEI’s board have indicated that it intends to raise the dividend again in the current financial year…
03 Mar 2021 Strength in depth
UK Equity Income trusts have done a heroic job of maintaining their dividends through the pandemic...
05 Nov 2020 Fund Analysis
ASEI targets above-average income and capital growth with an index-agnostic approach...
15 Apr 2020 Hold fast
Investment trusts' revenue reserves could make them a vital stronghold for investors facing UK dividend cuts of as much as 47%....
12 Mar 2020 The importance of buying earners*
Our analysis shows that the impact of dividend contributions on long term returns is anything but trivial...
05 Mar 2020 Fund Analysis
ASEI targets above-average income and capital growth with an index-agnostic approach...
05 Dec 2019 Holding something in reserve
A sterling bounce poses a threat to UK dividends - we look at how UK equity income investment trust managers stand prepared…
26 Jun 2019 Measure for measure
In the first of a two-part series, we examine the tools investors can use to assess how active a manager actually is…
14 May 2019 Fund Analysis
The long-standing manager, Thomas Moore, utilities a bottom up approach to identifying opportunities, and is entirely index agnostic in his approach...
03 Oct 2018 We can be heroes
Our analysis has uncovered the trusts which have generated a solid income through thick and thin - without compromising other aspects of performance...
01 Oct 2018 Fund Analysis
Standard Life Equity Income (SLET) offers investors above-average income, while also providing real growth in capital and income.
13 Jun 2018 Still waters run deep
UK equity income trusts trade at a discount to their global-equity-income-focused counterparts, yet our research suggests this could be unjustified...
13 Jun 2018 Fund Analysis
A highly-differentiated UK trust which, thanks to the manager’s unconstrained approach, generates the majority of its income away from the most popularly-held stocks in the sector...
13 Dec 2017 Fund Analysis
A highly differentiated UK equity income trust with a clear focus on dividend growth
20 Nov 2017 Thin ice
Our analysis shows the extent to which funds in the UK equity income sector are concentrated on just a few dividend paying stocks, revealing significant systemic risk…
24 May 2017 Why reinvesting dividends is crucial
The team at Standard Life Investments highlight the powerful effect reinvesting dividends can have on an investor's total returns...
24 May 2017 Champion funds for income investors
We unveil a sophisticated new rating system designed to pinpoint the UK's best equity income funds...
24 May 2017 Fund Analysis
A highly differentiated UK equity income trust with a clear focus on dividend growth that avoids many of the most popularly-held mega-caps in the sector
26 Jan 2016 Sector report: What lies beneath
Amid growing unease over yield, we highlight five equity income trusts to cope in a harsh environment...
View all

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