Improved picture at Aberdeen Diversified Income & Growth – Aberdeen Diversified Income & Growth made an NAV return of 12.5% for the year ended 30 September 2021 and a return to shareholders of 15.6%. Much better numbers than last year (-0.8% and -10.6% respectively). The dividend was increased from 5.44p to 5.52p, but this was not covered by earnings – the revenue per share was 5.14p. The balance came from reserves. The discount narrowed a little, but remains quite wide – finishing the period at 17.9%.
For the year to 30 September 2022, the board currently intends to declare four quarterly dividends of 1.40p or 5.6p in total, which will be the equivalent of an increase of 1.4%. [Competitor, JPMorgan Multi Asset Growth & Income has pegged its dividend increases to inflation, which is currently a lot higher than 1.4%.]
On 2 November 2020, the company repurchased and cancelled 73.2% of its bonds, to leave £16,096,000 outstanding. This benefitted the company’s cash flow by £2.7m a year. Gearing was 3.7% at 30 September 2021 as compared to 18.8% as at 30 September 2020. The board continues to keep the overall level of gearing under review but, in the prevailing economic environment, there is no current intention to introduce further fixed rate gearing.
Extract from the manager’s report
“Through building a well-diversified portfolio of investments, including a substantial exposure to infrastructure and real assets, the Company has responded well to the bouts of shorter term volatility that have swept the markets during the last year. The Company has been able to take a long term view regarding how economies will evolve, supported by the breadth of research and investment capabilities across the abrdn franchise. Given the goal of delivering a suite of diversified returns due to the latitude of the mandate, pleasingly, positive returns have been generated across the majority of the portfolio.
Remaining resilient to the challenges posed by the current environment is a key aim. The investment strategy seeks to achieve diversification across asset classes within a simplified framework under four main headings: Private Markets, Fixed Income & Credit, Listed Alternatives and Listed Equities. Exposure to the broad expertise of abrdn across these asset classes, including approximately 350 Private Markets-focused investment professionals, allows the Company to allocate to best in class products, both internally and externally.
Private markets
During the year, the Company increased from 25% to 44% Private Markets’ exposure. As described earlier, we invested its capital into a number of different Private Markets opportunities that we believe will deliver growth and/or cash flows for the Company. This was principally through investments in Private Credit (Mount Row Credit Fund II and PIMCO Private Income Fund), diversified Private Markets (Aberdeen Global Private Markets Fund), Infrastructure (additional investment into existing funds, and a new investment in the Pan European Infrastructure Fund), Private Equity (Secondary Opportunities Fund IV and Bonaccord Capital Partners), and Royalties (additional investment into Healthcare Royalty Partners IV).
Performance was pleasing from most sub-asset classes, but was driven mostly by Infrastructure and Private Equity. Performance was broad-based, but there were particular contributors which we outline in case studies. Burford Opportunity Fund was a large positive driver as a healthcare insurance related case in the United States was concluded in its favour, triggering a sizeable payout for the Company.
The Pan European Infrastructure Fund holding also made a large positive contribution to performance. The investment, which was identified by abrdn’s network, involved buying part of an existing portfolio of well-performing UK ports, and a water supply and treatment utility, at a sizeable discount to the portfolio’s inherent value. This uplift has been further enhanced, since purchase, as an unsolicited offer was received for the ports business.
The heightened demand for Private Markets investments is symptomatic of the struggle to generate differentiated performance in listed markets and forms part of the reason why we believe the Company is well placed to generate long term attractive returns for shareholders, which may not be easily accessed elsewhere.
Fixed Income & Credit
Fixed Income & Credit was the primary funding source for the Private Market investment drawdowns, reducing from 35% to 26% of the portfolio during the year. The reduction principally came from Emerging Market Debt and Asset Backed Securities (“ABS”), followed by Global Loans. An ABS issues a series of bonds with different credit ratings which are backed by pools of assets such as corporate loans, mortgages or credit card debt. Owners of the highest-rated bonds are less likely to experience defaults but receive the lowest return while owners of lower rated bonds benefit from the highest potential return but are also the first to experience losses when defaults occur.
Similar to Private Markets, performance was broad-based, deriving from ABS, including Junior ABS, as well as from Emerging Market Bonds and Global Loans. Contribution to returns was led by Blackstone Loan Financing, described in more detail below, and TwentyFour Asset Backed Opportunities. TwentyFour, which invests in UK and European residential mortgage backed securities and collateralised loan obligations, made money from both capital appreciation of these assets, and from income. Performance was supported by the improving economic outlook, and therefore creditworthiness of borrowers, a benign credit environment, and positive investor flows into the asset class given its floating rate nature (affording inbuilt inflation protection).
Listed Alternatives
The proportion of the portfolio in Listed Alternatives reduced from 22% to 19% over the year as we sold holdings to fund certain Private Market investments. The principal funding source was the proceeds from our investment in Alternative Credit Investments which was bought by a private investor at a significant price above its inherent value in March. This ‘take-private’ transaction was one of several, either completed or announced, that the Company’s shareholders benefited from as part of the Listed Alternatives exposure during the period.
Other take-private transactions that the Company benefitted from included KKR’s purchase of John Laing, and Blackstone/ AGP’s bid for GCP Student Living.
Listed equity
We lowered the proportion of the portfolio in Listed Equity investments during the year, moving from 14% to 13%, reflecting the increased funding requirement for Private Market investments. However, this included reaching a low of 9% in November 2020, which was reversed later in the year, as the scale of fiscal spending promises around the world, but notably in the United States, pointed to expectations of three years of above trend global growth.
Performance was driven by both passive and active strategies. The ASI UK Mid-Cap Fund performed well from the point of investment in December 2020. This investment was made in order to benefit from growth opportunities in UK markets, one of our favoured equity markets over the long term due to its undervaluation by comparison to other markets, coupled with the economic growth anticipated as discussed previously.“
ADIG : Improved picture at Aberdeen Diversified Income & Growth