Abrdn Diversified Income... Share Discussion Threads

[cc2014] 23/8/2021 09:35:23

Investment objective (effective from AGM date of 23 February 2021)
The Company seeks to provide income and capital appreciation over the long term
through investment in a globally diversified multi-asset portfolio.

Performance measure
NAV total return (defined as change in NAV plus dividends reinvested) of 6% per annum
over a rolling five year period.

[essentialinvestor] 23/8/2021 09:09:31

Spec, thanks for the view and happen to share your circumspection.

I keep ADIG on a watchlist and get the 99% of the market being priced for perfection rational.

[spectoacc] 23/8/2021 06:52:58

Thanks @HP - valid points, CLO exposure isn't huge, but the key point to me is it's there, and how many realise it's there. I'd say same for high-yield bonds/EM bonds.

Something else you've said and so have I - a number of the funds have cash weightings. ADIG are paying fees on holdings partly in cash, and you're paying ADIG's on top. Which circles round to wondering how sustainable and consistent the 6% target is, when not fully invested.

Again, portfolio feels like generally risky (with lots of it, to give the illusory comfort of diversification) coupled with some very low risk. But you can make that yourself, and know what's in (tho not at 18% discount). I just don't buy that ADIG is a fairly certain earner.

(HL thinks 5% geared btw - not much, & may be wrong, vs the indirectly held cash).

@EI - indeed. Perhaps because the super-low interest rate trade has partially run its course, unless we're going lower than 0.1%. Eg renewables sector.

Not anti-ADIG, but think the hugely spread portfolio is largely spread across the same risk (likely interest rate risk), whilst masquerading as low risk and diversified. The judgement is whether the discount compensates, but the manager's confidence that it'll go to par seems unwarranted.

[essentialinvestor] 22/8/2021 23:35:16

Why has NAV growth been so stagnant over the last 12 months when current conditions

could not be more supportive across multiple asset classes.


An approx 2% NAV gain over August 2020 levels.

[hugepants] 22/8/2021 23:01:33

After reading some of the above posts I had to double check I hadn't invested in some dodgy loan fund lol. This is a multi-asset trust and at the last fact sheet date (end June 2021) the portfolio split was;

Private Markets 41.9% (infrastructure, private equity, real estate etc)
Fixed Income and Credit 27.8% (bonds, loans etc)
Listed Alternatives 20.9% (listed stuff like bpcr, supr, resi, prsr, ukw etc)
Equities 10.9%
Net Cash -1.5%

Whatever clos they own will be included in Fixed Income & Credit which includes stuff like TwentyFour Asset Backed Fund, Neuberger CLO fund (4.5% of the folio). They also have some emerging market bonds. TwentyFour fund is the largest investment at 9% of the folio. fyi it comprises 63% bonds, 26% cash and 11% other. So it may include some clos in "other". Total exposure to clos is obviously low versus the total NAV though.


The plan going forwards is to increase exposure to private markets to 50% and reduce the others

Personally I'm happier holding something like ADIG (which is also ungeared) than a common garden equity trust just now. Most equity trusts seem to have fully recovered to pre-pandemic levels. Some are much higher.

[spectoacc] 20/8/2021 15:45:07

Ha ha thanks both. Not sure how I've not ploughed through ADIG before.

Been out, back to finish the de Silva presentation:


Likens ADIG to RIT & SMT - he should be so lucky.

"Should be trading close to par in a couple of years".

"Stable and consistent private markets portfolio".

"£80bn of assets under management [the group] and can drive costs down".

Currency hedged back to Sterling, a cost risk in itself (as shown by those caught out by margin requirements).


Grudgingly like him but fear he's wrong - strategy seems scattergun, and mostly taking on similar sorts of risk. Which isn't to say it won't do well, but basically "Buy everything esoteric that promises a high yield, and consider yourself diversified because you've bought so much of it".

If the choice was money in the bank at less than 1%, or ADIG on a big discount yielding 5.5%, you'd probably punt ADIG.

But seems too much difficult-to-quantify risk to me, even beyond opaque CLOs. I'm still not entirely sure what it holds, particularly within the funds. Again, wonder how many holders had an idea of the CLO side.

I think they'll consistently pay the dividend, but his "longer term capital gains" may be anything but, and hence the discount remain. He's optimistic on the income covering the divi soon - and could well be right - but we've seen with a lot of the renewable ITs what can happen to capital values.

Struggling to reach a conclusion - "not bad, not for me (at the moment)" I think. Good luck holders :)

Does at least have scale, & will look again on dips, or change opinion on a dime.

[cc2014] 20/8/2021 13:27:00

My post is in jest Tiltonbuy. I thought a bit of humour would brighten up the day.

[tiltonboy] 20/8/2021 13:18:48

CC2014,

Specto is by no means a stranger to trusts, and the only surprising thing is that he hasn't been on this door step before. We don't always agree on the merits of certain funds, but I take his views very seriously.

[essentialinvestor] 20/8/2021 12:39:34

Ah, that's the one - that's for the reminder.

[cc2014] 20/8/2021 12:39:31

Dear Mr. SpectoAcc,

We note that you have arrived at ADIG, probably attracted by some discount in a table seeking a low risk stock paying a decent yield.

We regret to inform you that all such stocks have been pumped up to the sun, moon and stars by quantative easing and if not by that by very many posts on Twitter.

Research shows that if you scavange every single stock in the universe of possible choices and put in very many hours of research it may be possible to find the odd gem of a possibilty. It won't actually be a gem, it will still be over-priced, but if the share price where to drop 2% that would probably be enough to encourage you to execute the buy button with your broker.

Regrettably, our research also shows that should any such stock actually drop 2%, there will be only extremely low liquidity and there are another 10,000 investors in the same position as yourself all ready to pounce on the opporuntity of a lifetime. 9,999 of these investors will be less risk adverse than you and be willing to press the buy button first.



That's what it feels like to me anyway. The only stuff I can find to buy is stuff I already own and I'm reluctant too as I've got enough already or I just need the share price to drop a bit but it never quite gets there. I'm happy with my investments but would prefer I had far more holdings than I do.

Enjoy ADIG whatever you do. It's a good story. Whether it's a good investment at 98p only time will tell

[cc2014] 20/8/2021 12:05:06

Yes they have music royalties too. I thought it was an American company and not SONG. Need to check

[tiltonboy] 20/8/2021 12:03:21

Edited....

They sold SONG in February, and bought Round Hill

[tiltonboy] 20/8/2021 12:02:14

EI,

British Assets, then Black Rock Income Strategies. It should have been wound-up years ago...and still should be!

[spectoacc] 20/8/2021 11:30:33

He sounds more level-headed than I expected (still listening).

6% pa and capital growth, with low equity correlation. Yet interest rates are 0.1%. Not convinced. Emerging market bonds, CLOs - great, when going well, but can go very wrong. Not convinced there's a rolling 5yr 6% annualised that also has very low risk. Sure, you'd hope for nearer 8% from equities longer term, but you'd have to accept 50% downside too.

ADIG seems to be punted at the riskier end, both in liquidity and asset class, whilst claiming to produce a low-risk 6% pa by virtue of being diversified across these assets, LTCM-style.

Social housing, PE, CLO, bonds, healthcare royalties, EM bonds - can buy ITs in all of those. Just waiting for him to mention music streaming :)

Does the discount account for the hidden risk...

[essentialinvestor] 20/8/2021 11:29:14

Discount to NAV is at least partly because of repeated failures to hit the Trust
mandate under various incarnations/guises. Formally British Assets Trust (from memory)
then a mandate and name change which completely failed - the name escapes
me now. Next it became ADIG and failed again to perform leading
to an investment review, another new lead Manager from the same stable ...

I take the point about the rest of the market being priced for perfection etc.

[hindsight] 20/8/2021 11:17:05

[@hindsight - I'm getting larger into the REITs! Still more to go IMO, now the NAVs are rising and divis being (slowly) reinstated.]

Hope your right, some M&A is needed on a lot, too many over feed turkeys

[speedsgh] 20/8/2021 11:13:35

@Specto - Here is the link to the playback of the QuotedData presentation by ADIG's Nalaka de Silva from May this year. Possibly useful as part of your reseearch...

[spectoacc] 20/8/2021 11:02:01

Thanks both. Agree on discount point, and yield. Perhaps buybacks narrow the discount (but I think it deserves it). I challenge any holder to read this snippet and think it should be trading at par:


"At end-November 2020, the second largest exposure was the TwentyFour Asset Backed
Opportunities Fund (c 8.6% of NAV). It has a substantial exposure to residential mortgage-backed
securities (c 51% at end-July 2020) as well as collateralised loan obligations (30%), while the
remaining portfolio included auto loans (6%), consumer asset backed securities (6%), commercial
mortgage-backed securities (4%) and cash and equivalents (2%). At end-July 2020, 25% of its
portfolio was rated at A and higher, 9% at BBB, 35% at BB, 23% at B, 2% at CCC, while 7% was
not rated. ADIG’s manager thinks that the default rate on medium-risk securities is currently low as
many of the underlying borrowers are in areas supported by government and central banks’
schemes. The fund has outperformed UK equities by over 15% since its launch in early 2017 to
July 2020, exhibiting much lower volatility than equity investments, according to the manager. While
its six-month performance to end-March 2020 was negative 15%...."


Wonder how many ADIG holders know about CLO exposure, albeit not large overall.

[@hindsight - I'm getting larger into the REITs! Still more to go IMO, now the NAVs are rising and divis being (slowly) reinstated.]

@CC2014 - unconvinced the money isn't still being sprayed around. Struggling to see where the outperformance comes from.


Tried the website link "Diversification 4.0: the past, present, and future of diversification":



"Company Proflies" has only this one:


Which again, talks a good game, but again, find myself either questioning the quantum of the returns, or thinking "why would you invest in anything else?". And again, returns well above what ADIG are targeting:

"The fund has a target return of 8-10% p.a. net of fees, half of which is expected to be generated from income. The Company committed €28.5m to SLCI II in 2018, the majority of which has been drawn and invested in a portfolio of solar farms in Poland; a UK rail rolling stock investment; two district heating investments in Finland and an energy storage business operating in both Germany and Belgium."


Wonder where that 2018 investment sits in NAV terms now?


I like the game they talk. I'm not convinced they're also walking the walk, nor that multi-asset, multi-manager, almost absolute-return funds work.

Paid-for Edison note just repeats management per usual, but interesting seeing the table of changes since 2019, & therefore where the fund's heading in terms of allocation.

[cc2014] 20/8/2021 10:44:28

SpectoAcc. Welcome to the Board. I'm sure we will all be interested to see your outlook when you have got to the end of your research.

For my part the decision process is pretty simple. Does the super large discount outweigh the checkered past of the IT, the morningstar rating of 1 and everything else there is not to like.

I concluded long ago that this is absolutely the sort of Trust I hate, a sort of fund of funds spraying money around anywhere they can find some yield to fit the target return. Or at least that's what the previous fund manager did who got ADIG into a right mess. I'm far more comfortable with the new manager although he is yet to deilver what he promises but no concerns of yet. There's a helpful video by him which if you scroll back there will be a link. Well worth a watch.


It is my view that as the market becomes more comfortable with the new fund manager the discount will close to around 10% and the closing of the discount outweights my concerns over some of the investments. I am however now wondering if the amount of P/E makes ADIG more opaque and this in itself may constrain the closing of the discount.

The yield is apparently nearly covered this year but will be going forward which is a better position than many of the IT's paying this sort of yield. Also, some of the funds ADIG is invested in are trading at a discount too so that's a discount on top of a discount (or at least they were when I bought, I haven't checked recently)

ADIG is about 1.5% of my portfolio and I own none of things it's invested in and it holds a bunch of stuff which spreads my risk compared with my other investments

[hindsight] 20/8/2021 10:29:35

All about the discount for me, there are very few free lunches in the income field, the grass was eaten down a long time ago. Any any good arbs that appear will be in closed funds and any tail risk will be open funds. Why last 12 months have been buying in reits, etc. But the grass in that field is looking well eaten too now.

[spectoacc] 20/8/2021 10:01:19

Guess the test will be how it performs in a bear market. Is it just a fund-of-funds of mostly the same thing, or is there genuine diversification. If there isn't, why hold so many.

Do quite like the Aberdeen Global Private Markets Fund write-up, albeit it's a holy grail I bet they'll struggle to achieve, particularly now. And unsure why you'd buy anything else - ie why you'd dilute what this fund is offering:



"Return potential
In the current environment, fully-priced equity markets and
ultra-low bond yields mean that returns from traditional balanced
investment portfolios are likely to be very modest in future. At the
same time, diversification is harder to find – the world economy is
more closely connected than ever, with financial markets
inextricably linked.

But in a private market universe – spanning private equity,
private credit, real estate, infrastructure and natural resources –
an asset class can be less sensitive to economic forces and,
therefore, less cyclical. Many of the assets underlying private
market investments generate cash flows that are driven by
reliable, long-term contracts. Examples include renewable
energy-generating farms, schools and hospitals.

For decades, most investors have relied exclusively on assets listed
on public markets. Yet, higher returns are often available from
unlisted or privately held assets like private equity, private
infrastructure, real estate and private credit. Private assets
typically offer higher returns than their listed counterparts
because investors are rewarded by an illiquidity premium.
Strong demand for private markets in recent years indicates this
premium is still appealing, given the low returns expected from
listed assets. Furthermore, many private assets offer a substantial
income return.

Diversification
Moreover, as well as attractive return potential, GPMF also offers
diversification benefits, either on its own or as part of a wider
portfolio. This is because returns from the underlying assets have
a low correlation with both listed markets, and with each other.
This lowers overall portfolio risk. It means we can aim to construct
a lower-risk portfolio with a higher expected return than public
market equivalents.

In an environment of very low government-bond yields and
sluggish global growth, we believe the Fund is well-positioned to
deliver better return prospects than traditional balanced portfolios
while, at the same time, preserving defensive characteristics."

[greenpastures2] 20/8/2021 09:50:10

I do look upon it as giving me some exposure in stocks and funds that I would not otherwise access. I haven't gone overboard with about 2% of my portfolio and regard it as a useful little earner.

[spectoacc] 20/8/2021 09:33:13

Thanks @hindsight. Agreed, and would hope ADIG gets lower fee level than could get direct, particularly on the Aberdeen funds.

[Edit - headline fee on the largest Aberdeen fund is: "Management fee: 85bps, OCF: 145bps". That for a fund holding 10% in cash].

There's fees beyond the 0.6% pa coming out of ADIG - tho probably not all that high, since trading should be minimal.

Still - fact remains it's only a buy thanks to the discount, and the hope of that getting to 5% or even to par seem optimistic. There's surely little clever in bundling together multi-asset funds into an IT, other than to hide the possible riskiness of the bond & CLO holdings.

[hindsight] 20/8/2021 09:28:20

SpectoAcc could argue the discount covers the fees ie using your 7%-0.6% = 6.4% and 20% discount get 8.0%
Edited