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Aberdeen: how we will revive BlackRock Income

by Gavin Lumsden Dec 16, 2016 at 08:53

BlackRock Income Strategies Trust (BIST), formerly known as British Assets, has endured a turbulent few years and poor long-term performance. Last month its board sacked BlackRock after 20 months in charge and appointed Aberdeen Asset Management to run the £280 million global portfolio, which it intends to merge with the Aberdeen UK Tracker Trust (AUKT) and rename Aberdeen Diversified Income and Growth (ADIGT).

In this video interview fund managers Mike Brooks and Tony Foster talk about the future investment policy for the investment trust and how it will compare with their Aberdeen Diversified Growth fund.

Can't watch now? Read the transcript

Gavin Lumsden: Hello, with me today are Mike Brooks and Tony Foster of Aberdeen Asset Management to discussing their plans for the BlackRock Income Strategies Trust. Aberdeen recently won a competitive bidding process to take on this £280 million investment trust which has suffered from poor performance for years under its current manager at Blackrock and also previously under F&C. The proposal before shareholders is to merge it with another of their trusts – Aberdeen UK Tracker – and create a £500 million global fund that will be called Aberdeen Diversified Income and Growth, which Mike and Tony will run.

So, Mike, Tony, thanks very much for joining me. Mike, I’ll make a start with you. This is a good win for Aberdeen but is it a good win for shareholders of BlackRock Income?

Mike Brooks: Yes, we think so. First and foremost because the revised investment proposition we think is very attractive, investing in a very diversified portfolio that gives investors access to a wide range of interesting asset classes and gives them the kind of portfolio that the world’s largest, most sophisticated investors would hold. In combination with that the merger with Aberdeen UK Tracker gives an enlarged trust, it allows some investors who want to exit the trust, the chance to get out, so it removes that kind of overhang and it allows the trust then to have a larger, more liquid ongoing base. And it reduces the debt as a percentage of the overall portfolio so there’s a few structural reasons alongside the investment proposition that make this a good deal for shareholders.

GL: That sounds positive but you’re alluding to the multi-asset approach Tony that you both use on your existing funds and, you know, the multi-asset approach has been tried. Blackrock tried it in the past year and a half, two years and it’s been found wanting so what is it that you and Mike are going to be doing differently?

Tony Foster: I think BlackRock had a very narrow focus in their investments in terms of their heavy focus on UK equities to generate income and a large amount in bonds generally. We’ve gone for a much more diversified approach, looking at investing in social infrastructure, investing in loans, investing in multi-manager property funds, in private equity secondary funds, a full breadth of assets.

GL: You invest a lot in other investment trusts actually to access those specialist asset classes you’re talking about.

TF: Over 60% of the investments we will be making will be in funds managed on the Aberdeen platform, so we have access to a wider range.

HL: Not just Aberdeen funds?

TF: Aberdeen funds and third party.

GL: Now Mike if shareholders of the trust were to look at the performance of your existing fund, Aberdeen Diversified Growth, it’s not a trust, it’s an open-ended fund, what would you say to them? It launched at the end of 2011. It’s up, according to our figures, 33.8% which is less than the FTSE All Share but it’s been a lot less volatile and it’s beating its sector average as well. Have I highlighted all the main points?

MB: Yes. The open-ended fund has an objective of cash plus 4.5% per annum net of fees and it’s achieved that almost bang on in the first five years of its life. And it’s done that with just under half the volatility of equity markets and not only that when you’ve seen equity markets sell off by significant amounts it’s pretty much held its value. It’s fallen by a few per cent on each occasion. Now with this investment trust, the great thing about an investment trust is it’s a permanent capital vehicle, we can invest in a lot more illiquid strategies, take advantage of illiquidity premia and get that extra return so we’re targeting a higher return from this strategy, cash plus 5.5%, which we think is really attractive, delivered with the low volatility.

GL: The new investment policy the board has proposed doesn’t include the kind of commitment to the dividend that was there previously. Now this trust has got a poor performance on the capital front, there’s no disputing that, but one of the good things about it was its high dividend yield of around 6%. What’s happening to dividends going forward?

MB: I think one of the key things we’re trying to achieve here is a sustainable level of dividend so a 6% dividend yield as it was previously is very high and questionable whether that is sustainable in the long run or not, especially given where yields are on a number of asset classes. So re-basing the dividend – and the board has announced a cut of 20% from the current level – that kind of level that leaves it about 4.5%, we’r e not sure exactly what the dividend policy will be but that kind of level, gives what we think is a more sustainable yield. Still a very attractive yield compared to other trusts but something that is more sustainable and that can allow growth in capital values as well.

GL: What has investor reaction been like since these proposals were announced at the end of last month because the share price is down a little bit, markets have been difficult, but the shares are still trading about 15% below their net asset value. So Tony, what’s that telling you? Do investors like what you’re saying?

TF: The ones we’ve met so far have generally been supportive in terms of the comments they’ve been making. They’ve been keen to understand how our approach is taking on what BlackRock started. And I think in most cases we’ve had positive feedback from those investors. It’s early days yet.

GL: It’s early days, the vote takes place in March, this process has got some way to go. But Mike is one of the issues here that from a wealth manager’s point of view this is arguably a one-stop shop fund that they don’t need because they are experts and can allocate to specialist funds and the private investor, well they might well be interested in a one-stop shop but they’re wary I think still of this multi-asset approach.

MB: Well we can understand there has been a negative experience with this trust in the last 18 months but what we’re offering here is a core offering for all investors because it can combine a very wide range of asset classes. And it does it within one simple structure, very transparent and with very competitive fees as well. So we think that’s a valuable investment prospect for a wide range of different investors, whether it’s a core investment for private wealth managers to have alongside other investments, or whether it’s potentially a one-stop shop for individual investors. I would certainly put all my money inside this type of trust because I think it covers all the bases and is a very diversified offering. 

GL: OK, well arguably the decision around the dividend is something that maybe could have been taken last year when the board first looked at the management, so maybe it’s good that’s been addressed. And who knows? Maybe second time lucky for the multi-asset approach. Gentlemen, thanks very much for joining me today.

TF & MB: Thanks very much. Thank you.

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Comments  (10)

  • JohnR: 

    Good interview Gavin, thank you.

    I've decided to stick with this IT as a long term proposition, seeing this current upheaval as a bit of a rough patch on a long journey. I've seen far worse elsewhere and come through it.

    Here's hoping and expecting Aberdeen will successfully turn things around, as always time will tell.

    13:16 on 16 December 2016

  • GC: 

    i would like a new board and chairmen for the trust

    15:22 on 16 December 2016

  • richard tomkin: 

    Where have I heard all this before? British Assets,BR "Income Strategies" - they

    have all tried it.Not for me,thank you very much!

    18:25 on 19 December 2016

  • ynys: 

    So the managers of this new Investment Trust, ADIGT will invest substantially in (Aberdeen) funds. Each of these funds will have its own fees to add to the costs of the new trusts own fees. Investors money would be better placed in assets rather than wasted in fees! Also the bias towards in house funds is disturbing. Find a very large barge-pole and stay well away!

    00:48 on 22 December 2016

  • Neil K: 

    Not to mention Aberdeen's recent performance (or lack of).

    09:40 on 30 December 2016

  • talbot: 

    The might consider starting with one of their own Murray Income Trust which has not got a very good record over the last few years

    09:50 on 30 December 2016

  • dlp6666: 

    @Neil K

    Yes, I've noted that, for example, Aberdeen's Asian Income Fund IT (AAIF) was recently downgraded by Morningstar from Gold to Bronze.

    10:34 on 30 December 2016

  • William Phillips: 

    Fancy managers starting with no clear guidance from the board about the dividend. All very well saying a 4.5% yield for starters, after revenue reserving is attractive- not hard to replicate in a FTSE 100-based portfolio, however- but how strongly if at all is that income expected to grow, in real terms?

    We hear lots of predictions that equity payouts worldwide are going to stall or shrink, so will the new trust be tempted back into bonds- playing the yield curve if the bubble pops, to sustain payments? Will it rely on infrastructure, where divis are stable v. inflation but entry premia are gigantic? Will it go into P2P loans just as that untried industry hits defaults, or into rental property as 'disruptive' technology calls the future of city real estate and industrial sites into question? I see elephant traps ahead for desperate income-seekers.

    All that said, Aberdeen could hardly do worse than the spiral of decline British Assets was in. But all this multi-asset jazz could easily wind up meaning a stiffer OCR for not much extra return, if any.

    The schizophrenia of 'growth and income' looks increasingly dubious in an age of polarisation: between mature companies during a dull time for economic growth, and challenges from disrupting upstarts, such as Scottish Mortgage espouses.

    For G&I one might prefer to DIY by splitting funds, with SMT contrasted against an old faithful such as CTY. It would save on expenses, anyhow.

    15:22 on 02 January 2017

  • George T Payne: 

    I have been haltered and steered into the position i now find myself . last year i was invested in BRITISH ASSET TRUST and was told that the name was being changed to BIST. now moving on i find myself in ADIG with losses of thousands of pounds . Where my BAT shares were hovering in the £1.40/1.50 range they seem now to be fixed at about £1.13 . Even Black Rock Income Strategies is still in issue and priced at £1.30 while the other one Aberdeen UK Tracker is trading at £3.51.These are the two main funds amalgamated to form ADIG .I feel that i have been mugged by the gang of managers involved in this muti-merger stripping my fund of thousands of pounds . It is not bad practices on my part because these guys are hired managers for god sake and combined have ripped me off . If i had known the planned direction of changes i would have sold my holding but you must trust your managers . I have received no mail or computer communication addressed to me on this matter .

    18:11 on 03 March 2017

  • George T Payne: 

    I posted a substantial statement on this scheme losing me thousands of pounds but it seems to have been wiped out somehow .

    18:45 on 03 March 2017

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