Aberdeen Diversified Income and Growth Trust PLC (LON:ADIG) follows a diversified multi-asset approach, aiming to generate attractive long-term income and capital returns. The managers aim to hold a genuinely diversified, global, multi-asset portfolio of investments with differing return drivers and risk characteristics, that should produce uncorrelated returns. Performance has been mixed since the appointment of Aberdeen Standard Investments (ASI) as manager in February 2017, but positions in longer-term, less liquid investments, typically only accessible to large, sophisticated investors, are steadily being built up, and the experienced investment team is confident that the Libor +5.5% pa target return can be achieved over the investment cycle. The FY18 total dividend was 1.17x covered and the board intends to increase the FY19 dividend by 2.3% to 5.36p, representing a 4.7% yield.
The market opportunity
Equity markets have rebounded in 2019, pushing valuation multiples above 10-year average levels, with weakening global economic output likely to temper corporate earnings growth. While the prospects for equities are unclear, relatively low yields detract from the appeal of government bonds, and the outlook is also clouded by changes in interest rate expectations, potentially leading to further volatility in equity and bond markets. Given this backdrop, a diversified portfolio of income-generating alternative assets with the prospect of uncorrelated returns may appeal to investors.
Why consider investing in ADIG?
Genuinely diversified multi-asset portfolio should produce uncorrelated returns.
Access to ASI global investment platform’s best ideas in public/private markets.
Up to c 40% portfolio exposure to funds typically closed to retail investors.
NAV total return volatility expected to be around half that of equities.
Competitive 0.88% ongoing charges, with no performance fee.
5% threshold for active discount management policy (based on ex-fair NAV).
Moderate gearing, narrow discount, attractive yield
While many of its peers are ungeared, ADIG has moderate structural gearing, with a £60m 6.25% bond due in 2031. Since October 2018, ADIG’s shares have moved from a premium to a 1.6% discount to ex-fair NAV, which compares with a one-year average 1.5% premium and a three-year average 2.8% discount. The trust’s 4.6% historic dividend yield is the second highest in the peer group, well above the 2.5% average yield, and the dividend rate was increased in the first quarter of FY19.
