Investment Trust Analyst: Second time lucky as Aberdeen has a go


#1

Originally published at: https://whichinvestmenttrust.com/investment-trust-analyst-second-time-lucky-as-aberdeen-has-a-go/

It had the same management firm from 1898 until 2014, since when it’s had another two, so what does Aberdeen plan for the renamed Aberdeen Diversified Income & Growth, as it announces the result of a merger with a fellow Aberdeen trust. Fast Facts Established in 1898 Moved management contract for the first time in…


#2

While I’m not particularly bothered – or even surprised come to that – to see the demise of the Aberdeen UK Tracker (AUKT) which was well past its ‘sell-buy date’. Being that Vanguard (along with others) does it so much better, and with less tracking errors, thanks to a lower cost base and an absence of discount / premium concerns. I think it’s very naughty of Aberdeen to restrict AUKT shareholders to only being allowed to pull-out a maximum of 60% of their assets in cash. So much for a supposedly independent board of directors charged with looking after the interests of the shareholders who pay them to do so. Leaves a taste of cosy collusion between the Board and Aberdeen.

However, very saddened to see the final sinking of the near 120-year old and much reduced British Assets that has been distressed and suffering for some time as a result of the unwieldy and expensive long-term debenture stock burden it has been forced to shoulder. Yet another example, if one was needed, that debt when mishandled is the biggest destroyer of wealth preservation.

Like dicem, I have reservations as to what Aberdeen is trying to financially engineer with this vehicle. The previous costly debt burden has not disappeared; it’s still there and will remain so for the next 14 years. The managers have only a limited track-record in this specialised flexible investment sector. Even though cut by 20%, a yield of 4.8% is still a high hurdle to reach given the current investment climate. If such a yield can be achieved, and what’s more maintained, then I’d bet it will be done at the expense of capital considerations.


#3

I read that the new trust will British Assets, i.e. they inherit the historical structure, it’s British Assets by another name, and with a different investment mandate.

I would give this a wide berth until we see what they can achieve. The fixed debt they took isn’t prohibitively expensive, but it is a challenge nonetheless.

They have interesting ideas, investing in illiquid investments like senior debt and private equity does sound sensible to me, but I take @forrado point that it could be at the expense of capital growth, which would ultimately deplete long term value.


#4

I can’t help but think that a combination of a global equity income trust such as Murray International with a flexible fixed interest trust like Henderson Diversified Income would deliver much the same result with less uncertainty.


#5

I’ve just been reading about Brunner @forrado and been very surprised at how well it has done despite having even more horrendously expensive debt than the Aberdeen trust/British assets.

I make the point because I agree with you on debt destroying wealth, I just struggle to explain how they’re done to well. Saints or Scottish American too, they have an 8% debt burden, but they’ve set property and Bonds against it according to what I’ve just read.