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Fund Profile

Aberdeen Standard Equity Income 05 November 2020


Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by abrdn Equity Income. 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.

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Aberdeen Standard Equity Income Trust (ASEI) aims to provide shareholders with an above-average income and real (inflation-adjusted) growth in capital and income, through investment in a diversified portfolio of predominantly UK equities. ASEI is managed by Thomas Moore, who also manages the open-ended ASI UK Income Unconstrained Equity Fund and co-manages the ASI Income Focus Fund. The manager seeks to identify companies where change is not yet accurately reflected in the valuation.

ASEI is an all-cap portfolio, with a majority of the portfolio invested out with the FTSE 100. The closed-ended nature of ASEI affords Thomas a greater degree of flexibility to take and hold positions in less liquid (often smaller) companies, and by extension to deviate from the benchmark FTSE All-Share index without constraint.

As discussed under Dividend, ASEI has now raised its dividend every year for the previous 19 financial years, and appears likely to do so again when the board declares the final dividend for the financial year 2020. Having accrued substantial revenue reserves of 1.03x the current dividend, the board has significant flexibility to support further dividend growth going forward – even as index level dividends are likely to see significant impairments. The historic dividend yield is presently very high, at c. 7.8% (as at 09/10/2020).

The historic yield is further boosted by a Discount that has widened to c. 12.3%. This figure is noticeably wider than that seen in the wider peer group, but is likely in part a reflection of challenging conditions for performance in recent years. As discussed under Performance, we believe stylistic factors (specifically a value tilt) have proven a sharp headwind to relative returns.

Analyst's View

Conditions have undoubtedly proven challenging for ASEI in recent years. Sharp dispersions in market pricing of solvency risks have driven even wider what the manager had already previously identified as near-unprecedentedly high valuation spreads between lowly and highly-valued market constituents. Reversion of this, and with it the likely relative fortunes of ASEI, continues to hinge on the shape of the economic recovery. A more rapid economic recovery than is currently anticipated could see insolvency concerns fall for many companies, and prove a tailwind to value stocks. However, a continuation of low-interest rate regimes (with the BoE reputedly considering negative interest rates) could feasibly extend value’s travails, particularly if the market belief shifts towards an assumption that the authorities are willing to hold ‘real’ rates negative for a protracted period.

Perhaps this explains why a shift higher in inflation expectations has not yet catalysed a significant value recovery? Yet ‘later’ does not equate to ‘never’, and the degree of value dispersion within the UK market highlighted by the manager remains compelling. If there is a rebound for value, then ASEI should be a beneficiary. In the near future the dividend is unlikely to be covered by income within ASEI, but there are substantial revenue reserves available to support the dividend which, yielding c. 7.8%, is very compelling. With a 19 year track record of dividend increases at stake, we expect the board’s dividend policy to remain supportive for the near term.

bull bear
Strong track record of dividend growth, backed by revenue reserves Performance has remained challenging from a macro and stylistic perspective
Likely to perform strongly in a value recovery, and positioned for easing macro concerns Gearing can exacerbate downside, as well as amplify upside
Discount is wide relative to peer group and ASEI's own history Whilst discount is relatively wide there is little sign of narrowing as yet despite buybacks
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Fund History

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27 Dec 2023 Fund Analysis
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01 Feb 2023 Fund Analysis
AEI generates one of the highest yields in the sector without compromising growth potential…
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-active, benchmark-agnostic portfolio of UK equities with a clear bias towards companies that generate attractive dividend growth.
06 Jun 2017 Fund Analysis
A UK focused equity income portfolio with a solid track record and unique investment style...
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