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Top quartile performance from Aberdeen Standard Equity Income

Aberdeen Standard Equity Income Trust just missed the benchmark for the year

Aberdeen Standard Equity Income (ASEI) has published its annual results for the year ended 30 September 2021, which its chairman, Mark White, says puts it among the top quartile of investment trusts in the UK Equity Income peer group for the financial year. During the period, ASEI provided an NAV total return of 39.8% and a share price total return of 47.1%, both of which were significantly ahead of the All-Share, which ASEI uses as a reference index, which delivered a total return of 27.9%.

The manager says that ASEI benefited from:

  • Heavy exposure to economically-sensitive sectors which contributed strongly to performance. Consumer Discretionary was the largest contributor to performance by sector, adding around 2.5% of relative performance. ASEI’s holdings in housebuilder Vistry and sofa retailer DFS were particularly helpful as consumer demand rebounded so sharply. Financials also contributed strongly, adding around 1.0% of relative performance. Premier Miton and Close Brothers rose sharply, as investors observed improving market conditions.
  • Limited exposure to defensive sectors which helped ASEI’s performance as confidence in the economic recovery caused these stocks to fall out of favour. ASEI’s underweight positions in Healthcare and Consumer Staples added around 2.4% of relative performance, in particular not owning Unilever or Reckitt Benckiser.
  • Its gearing position, which averaged 11.7% over the 12 month period, contributed just over 3% of relative performance.

The main detractors to performance at the stock level were companies that produced results that were disappointing relative to market expectations, notably gold mining business Centamin, spread-betting business CMC Markets and motor insurance business Sabre Insurance. Between them, these three stocks cost 1.7% of relative performance.

Portfolio activity

ASEI’s manager says that, in an inflationary environment, it is finding a wide range of cheaply valued stocks with the ability to pass on rising input costs and benefit from rising prices. Improving external conditions and self-help actions are driving operational gearing, as revenues grow faster than costs. This makes the manager confident that ASEI’s portfolio is well placed to help insulate shareholders against inflation. The manager is positioning the portfolio in stocks that offer an attractive dividend outlook.

ASEI’s largest purchases can be grouped into the following categories:

  • Larger cap stocks whose earnings are benefiting from the rebounding global economy and disciplined capital management, allowing generous dividends to be paid – these include Resource stocks BP, Royal Dutch Shell and Anglo American and Financials Barclays and Standard Chartered.
  • Domestic cyclical stocks that are set to benefit from the improving UK economy as confidence levels recover – these include housebuilders Persimmon and Bellway.
  • Faster-growing small and mid-cap stocks that have attractive market positions in growing markets, offering the prospect of prolonged dividend growth – these include online gaming business 888, private markets business Petershill and fuel distributor Vivo Energy.

ASEI’s largest sales can be grouped into the following categories:

  • Bid situations – ASEI received sale proceeds from John Laing, Equiniti, Hastings and AFH Financial. The manager says that it believes that the high incidence of bid situations underlines the intrinsic value within the portfolio.
  • Profit taking – ASEI took profits in CMC Markets following a significant rally in the share price. The stock has since had a profit warning due to a period of slower activity.
  • Reduced exposure to lower-yielding stocks – these include housebuilder MJ Gleeson and transport operator National Express.
  • Trimming some defensive mega-cap stocks whose earnings and dividend growth outlook appears more muted than other opportunities available in the market – these include GlaxoSmithKline and National Grid.

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