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Fund Profile

Aberdeen Standard Equity Income 15 September 2021


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Aberdeen Standard Equity Income (ASEI) invests in a diversified portfolio of UK equities, with a bias towards mid- and small caps. The portfolio is constructed in an index-agnostic manner, reflecting the team’s conviction on stocks, rather than referring to index weightings. This tends to result in an overweight position in small and mid-caps. ASEI is managed by Thomas Moore, who seeks to identify companies where change is not yet accurately reflected in the valuation.

As we discuss under Dividend, the current historic yield of c. 5.9% (as at 06/09/2021) is at present the highest within the AIC UK Equity Income sector. The board raised the dividend in financial year 2020, meaning that ASEI has now delivered 20 consecutive financial years of dividend growth and is now an AIC ‘Dividend Hero’. The board was able to raise the dividend despite obvious headwinds to revenues due to the pandemic thanks to having built up a substantial revenue reserve in recent years.

The manager, as we discuss under Portfolio, has identified multiple opportunities where he believes high dividend yields remain well supported by underlying earnings and yet unappreciated by the wider market. These higher yielding stocks are set to respond to evidence that their earnings outlook is improving, helped by the improved macro-economic backdrop. Increased confidence on their earnings growth will persuade investors that their dividends are sustainable and can grow. This is the trigger for their dividend yields to compress, providing capital growth as well as yield.

As we discuss under Performance, the portfolio’s heavy weightings in cyclicals and financials have started to benefit performance as the macro-economic backdrop has improved, helped by vaccine announcements and the consequent reopening of major economies. We think a return to a more inflationary environment, which the manager anticipates, would likely serve as a tailwind to relative returns.

Analyst's View

Dividend investors will have been cheered by the board’s decision to raise the dividend again in FY 2020, and the positive guidance it has offered going forward which suggests it is likely to remain supportive of continued growth. The need to draw upon reserves may diminish as underlying portfolio income recovers as anticipated by the manager, but these reserves nonetheless offer further comfort for shareholders. In the short-term, shareholders will likely collect a sizeable yield relative to the wider market, and longer-term they might hope that dividend growth will continue to exceed inflation.

Conditions in recent years have undoubtedly been challenging for a value-tilted strategy, and returns over five years have been disappointing. However, the pick-up in the relative return profile in H2 2020 is in line with what we would have anticipated (as discussed in our Previous note). If inflationary conditions persist, the near-term value offered by the higher dividend yields on many of ASEI’s constituent companies will likely further prove attractive.

This could prove a tailwind for the more immediate future but, should these conditions persist, we think it may well realign the market to ASEI’s favour. We note with interest the manager’s observation that, whilst value has recovered somewhat in recent months, ‘high yield’ as a factor has only turned into a tailwind in recent weeks (as opposed to months). This suggests to us that we may only be near the start of any meaningful rotation into higher yield stocks, and that prior to this what we have instead seen is a relief of insolvency concerns for highly indebted zero-yielding cyclical stocks.

Highest yield in sector, backed by revenue reserves Returns have been disappointing in recent years as bond yields have fallen
Likely to perform strongly in more inflationary environment Gearing can exacerbate downside
Differentiated portfolio provides access to mid and small cap companies Heavy domestic exposure presents risk if UK enters new lockdown
Continue to Portfolio

Fund History

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-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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