Performance: On an improving trajectory
Exhibit 3: Five-year discrete performance data
12 months ending |
Share price (%) |
NAV (%) |
Blended benchmark* (%) |
MSCI AC World (%) |
UK Gilts All Stocks (%) |
30/06/18 |
7.1 |
0.7 |
6.0 |
9.5 |
1.9 |
30/06/19 |
(6.1) |
1.1 |
6.3 |
10.3 |
4.9 |
30/06/20 |
(10.6) |
(2.4) |
6.2 |
5.7 |
11.3 |
30/06/21 |
17.2 |
13.0 |
5.6 |
25.1 |
(6.3) |
30/06/22 |
0.0 |
5.7 |
6.1 |
(3.7) |
(13.6) |
Source: Refinitiv. Note: *Blended benchmark is FTSE All-Share/FTSE World ex-UK 80:20 composite up to 26 February 2015 as provided by the trust, then UK CPI + 4.0% up to 10 February 2017 and Libor + 5.5% since 10 February 2017. All % on a total return basis in GBP.
From February 2021, relative performance is displayed for reference only, when ADIG replaced the Libor + 5.5% benchmark. ADIG’s NAV total return (net of fees) and share price returns have improved considerably during the past 24 months following portfolio reorganisation, outperforming the Libor + 5.5% measure over 12 months to June 2021 and being very close over 12 months to June 2022. The board and the portfolio management (PM) team addressed the previous disappointing performance in the three discrete periods from the first ADIG reorganisation in 2017 through to 2020 during its Q420 strategic review and consequent portfolio restructuring.
The improving risk-adjusted performance is also evident from Exhibit 4. The risk-adjusted NAV TR (defined as NAV TR to standard deviation) in CY21 of 2.5 exceeds the 2.1 of the MSCI World GBP Hedged. This illustrates ADIG’s lower volatility approach compared to global equities.
Exhibit 4: ADIG’s total return and volatility versus global equities index*
|
Total return (TR) |
Volatility (standard deviation) |
Risk adjusted return (NAV TR to standard deviation) |
|
ADIG share price |
ADIG NAV |
MSCI World GBP Hedged |
ADIG share price |
ADIG NAV |
MSCI World Hedged GBP |
ADIG share price |
ADIG NAV |
MSCI World Hedged GBP |
2019 |
3.3% |
9.2% |
25.5% |
12.5% |
4.5% |
9.9% |
0.3 |
2.0 |
2.6 |
2020 |
-5.2% |
0.0% |
11.7% |
39.4% |
10.5% |
31.0% |
-0.1 |
0.0 |
0.4 |
2021 |
6.3% |
11.7% |
23.9% |
11.6% |
4.7% |
11.2% |
0.5 |
2.5 |
2.1 |
Source: Aberdeen Diversified Income and Growth Trust. Note: *MSCI World GBP Hedged. TR in GBP.
According to the investment objective, set post-restructuring in December 2020, performance is now measured in absolute terms and targets a total return (defined as NAV growth plus dividends) of 6% pa over a rolling five-year period. The portfolio repositioning has resulted in an improved performance in the last year. Exhibit 4 illustrates that, compared to 2020 when the share price TR was negative (-5.2%) and NAV TR was flat (0.0%), in 2021 the share price TR was 6.3%, NAV 11.7% (debt at fair value) against the 6% return target. All asset classes have delivered net positive returns.
According to the management team, private markets contributed about half of NAV TR during CY21 (5.9pp). In the infrastructure segment (see Exhibit 9), a secondary pan-European power network investment was the top performer. The DWS Pan-European Infrastructure Fund I (DWS) sold its stake in Peel Ports and retuned a proportionate share of the proceeds (c €3.2m) to ADIG. DWS was sourced by the infrastructure desk. abrdn acquired the assets at a discount in Q420, making it a very good entry point. Port Group, a water utility asset, contributed c 45bp to NAV performance over the past 12 months, according to the management team.
Another large driver of performance in the private equity segment was Aberdeen Standard Secondary Opportunities Fund IV, to which ADIG committed recently and which, since ADIG’s investment, generated an internal rate of return (IRR) of more than 50%. The fund distributed $1.9m to the company in November 2021. This fund contributed c 48bp to NAV TR. In addition, a Danish company, Godt Smil, operating a chain of dentists, made a c 32bp contribution. The Aberdeen Property Secondaries Fund distributed c €3.6m back to ADIG from the proceeds of its investment in the TCAP Gemlife fund, the final remaining asset of which was a mezzanine loan secured against a portfolio of 13 retirement villages in Australia.
After March 2022, there was a significant gain from the I77 toll road asset in Aberdeen Global Infrastructure Partners II, where the fund owns express lanes into Charlotte, NC. The toll price has changed dynamically to reflect demand and, following recent testing, the forward expectation of cost per mile that can be charged is significantly higher than previously modelled, leading to a 40% uplift at the asset level, and a gain of more than 110bp in ADIG’s NAV.
The alternatives within the listed equity basket were the second largest contributor to performance (2.7pp). There were bids for John Laing Infrastructure Fund, and ADIG exited at a profit. The real estate segment, where an asset was made private at a price favourable to abrdn, also contributed positively. In the listed equities basket, MSCI World ESG tilted quantitative strategy performed well, as did the zero-fee internally managed the UK mid-cap equity fund, which follows a quality growth strategy. Despite EM debt being a drag on performance, the fixed income basket contributed 1.9pp to NAV during 2021, led by asset-backed securities. To mitigate currency fluctuations from holding EM debt, the team uses a diversified basket of currencies. For example, abrdn rotated out of a long JPY position during the year, moving to long US dollar versus the euro and the British Pound.
ADIG is a member of the Association of Investment Companies’ Flexible Investment sector, a very diverse sector by strategy. We have selected eight multi-asset peers within the AIC Flexible Investment sector that pursue an absolute return strategy and generate some income. We consider ADIG to be most similar to RIT Capital Partners, Caledonia Investments and JPMorgan Global Core Real Assets, which all have private markets exposure. Although JPMorgan Multi-Asset Growth & Income does not invest in private markets to a substantial extent, it is also a diversified multi-asset fund, whose strategies display a high degree of similarity with ADIG’s, including infrastructure, fixed income and credit and alternatives. That said, each strategy is quite distinct from the others and as such performance can diverge markedly between funds.
Exhibit 5 illustrates an improvement in ADIG’s performance relative to its peers, potentially demonstrating that the refreshed approach is working.
Exhibit 5: Selected Flexible Investment peer group at 30 June 2022
% unless stated |
Market cap £m |
NAV TR 6 months |
NAV TR 1 year |
NAV TR 3 year* |
NAV TR 5 year** |
Ongoing charge |
Perf. fee |
Discount (ex-fair) |
Net gearing |
Dividend yield |
Aberdeen Diversified Income & Growth |
299.4 |
0.5 |
4.5 |
10.6 |
12.4 |
0.62 |
No |
(16.9) |
100 |
5.8 |
Caledonia Investments |
1,940.6 |
11.0 |
26.5 |
51.0 |
76.9 |
0.85 |
No |
(26.8) |
100 |
1.8 |
Capital Gearing |
1,195.1 |
(1.1) |
3.2 |
21.0 |
32.8 |
0.52 |
No |
2.5 |
100 |
0.9 |
JPMorgan Global Core Real Assets |
221.8 |
11.9 |
23.8 |
|
|
1.35 |
No |
(1.1) |
100 |
3.9 |
JPMorgan Multi-Asset Growth & Income |
75.8 |
(4.6) |
(3.9) |
7.6 |
|
1.07 |
No |
(2.6) |
100 |
4.3 |
Personal Assets |
1,836.1 |
(3.1) |
0.0 |
17.7 |
24.9 |
0.67 |
No |
1.6 |
100 |
1.2 |
RIT Capital Partners |
3,852.6 |
(2.4) |
(2.1) |
40.3 |
58.8 |
0.72 |
Yes |
(6.1) |
96 |
1.5 |
Ruffer Investment Company |
982.0 |
2.2 |
5.2 |
33.1 |
33.6 |
1.08 |
No |
4.4 |
100 |
1.0 |
Peer group average (incl. ADIG) |
1,443.4 |
2.0 |
7.5 |
28.4 |
45.4 |
0.89 |
|
(4.0) |
99 |
2.1 |
Trust rank in peer group |
6 |
4 |
4 |
6 |
6 |
7 |
|
7 |
1 |
1 |
Source: Morningstar, Edison Investment Research. Note: *Ranking out of eight companies. **Ranking out of seven companies. TR = total return. Net gearing is total assets less cash and equivalents as a percentage of net assets (100 = ungeared).
While ADIG’s NAV TR remains below the peer group average over the four periods shown, its progress in the peer group ranking is evident. Among the eight peers, ADIG’s ranking was up from sixth over three and five years to third over one year (compared with shortly after the portfolio restructuring) to fourth over the last six months. While its five-year returns are below the peer average, we note that this partly reflects the weak performance in 2015–17 when it was managed by BlackRock Income Strategies.
ADIG has the lowest ongoing charge among peers of 62bp. Its dividend yield of 5.8% remains clearly ahead of the peer average of 2.2%. Importantly, the dividend yield is presented on a last 12-month basis. It has remained around this level during the economic downturn triggered by the COVID-19 pandemic. We note that ADIG set an increased dividend target of 5.6p per share for FY22 (from 5.52p per share in FY21). The trust’s ongoing charges are lower than the peer average and it does not charge a performance fee. ADIG’s shares continue to trade at a double-digit discount to NAV (16.9%), which is wider than the peer average.