Shake up at Aberdeen Diversified

Shake up at Aberdeen Diversified Income and Growth. The board and the manager have together conducted an extensive review of strategy to see how best to provide investors with growing income and capital that was expected when Aberdeen Standard Investments took on the mandate in 2017.

We reproduce this part of the statement here: “As a key part of this review, the Manager was asked to look at the portfolio’s strategic asset allocation given the changed assumptions to long term returns and in light of the volatility experienced in the NAV during the year. Reflecting the revised investment assumptions, the Manager proposed the following changes: increasing Alternative and Private Markets’ exposure, which will increase the available sources of return, diversify risk and reduce specific risk exposures where there was concentration risk (for example, in asset backed securities); and reducing Listed Equity exposure, but increasing its tilt to income. The Board has given its approval for these changes to take place, with the result that exposure to private markets investments will increase, on a fully committed basis, to around 55% of total assets over time. Prior to the strategic review, the exposure to unlisted investments was expected to extend to around 40% of the portfolio with the commitments then made. The unlisted investments provide exposure to an increasingly diverse range of assets with different return drivers. With earlier investments now reaching full maturity, and through the natural evolution of the portfolio, these will play an increasingly important element in the delivery of portfolio returns.

In reviewing the Investment Manager, the Board was keen to ensure that the Company benefited from the full resource of Aberdeen Standard Investments across both public and private markets as the portfolio evolves. With the greater focus on private markets investments, Nalaka De Silva, Aberdeen Standard Investments’ Head of Private Markets Solutions, has assumed responsibility for the Company’s asset allocation as portfolio manager and chair of the newly-formed ADIG Investment Committee. Its members cover the range of markets in which your Company invests. Nalaka has 18 years’ experience in developing, implementing and managing strategies across the Public and Private Markets spectrum. This includes investments across Private Equity, Infrastructure, Real Estate, Natural Resources and Private Credit on a global basis and strategies designed around client outcomes of growth and income. Nalaka joined Aberdeen Standard Investments in 2012 following senior roles at Australian and European investment management firms.

Investment Objective

The starting point of the strategy review was how best to deliver the Company’s investment objective.  The investment objective referenced in the circular issued by the Company in March 2017 (the “Circular”) was to target a total portfolio return of LIBOR plus 5.5% (net of fees) over rolling five-year periods.   As mentioned in last year’s Chairman’s Statement, LIBOR is to be phased out in 2021 so, as part of the review, the Board has taken the opportunity to articulate the Company’s investment objective around a statement which is clear and better reflects the underlying strategy.  It will also remove the objective from being led by events beyond its control such as the very real prospect currently of negative interest rates or, at some future time, when interest rates revert to increasing.  The Board has proposed that the investment objective should be:  The Company seeks to provide income and capital appreciation over the long term through investment in a globally diversified multi-asset portfolio.

Alongside this objective, the Board in future will use a Total Return (defined as dividends + change in NAV) of 6% per annum over a rolling five year period against which to measure the returns from the portfolio.  The Investment Manager believes that this total return is achievable based on their recent strategic asset allocation analysis and the proposed evolution of the portfolio. It is also consistent with the measure proposed in the Circular.

The Board is also proposing to amend the Company’s investment policy to improve risk diversification.”

Shareholders will vote on these changes in February 2021.

Results for year ended 30 September 2020

Highlights of these results are:

  • NAV return -0.8%
  • Share price return -10.8% as the discount widened from 7.6% to 17.2%
  • Dividend upped from 5.36p to 5.44p, and covered by earnings of 5.58p.
  • An increased quarterly dividend of 1.38 pence per share expected for the year ending 30 September 2021.
  • 73.2% of the expensive fixed rate debt, in the form of the 6.25% bonds 2031, repaid after the year end, resulting in lower interest payments, improved cash flows, reduced gearing risk and more flexible capital management allowing for increased share buybacks.

The manager’s report says that “The Fixed Income & Credit segment of the portfolio was the major drag on performance, contributing -1.8% to the portfolio’s overall return. This primarily reflected the weakness (followed by a relatively lacklustre recovery) of emerging market bonds and of funds investing in junior tranches of asset backed securities which were most exposed to any potential pick up in credit defaults.”

ADIG : Shake up at Aberdeen Diversified

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