September’s ‘perfect storm’ tempers Abrdn trust’s yearly results

Diversified Income and Growth Trust’s buyback policy ‘refined’


Abrdn Diversified Income and Growth Trust chair Davina Walter has laid the blame for the portfolio’s “disappointing” yearly results at the door of former chancellor Kwasi Kwarteng’s mini-budget.

The multi-asset trust reported net asset value (NAV) total return of 1.2% for the 12 months to 30 September 2022, but its share price fell 5% with a sharp decline coming in the final month of its financial year.

In spite of market turmoil throughout the period, Walter said the trust had delivered “steady performance and low volatility” up until the end of August.

“September can best be described as a ‘perfect storm’ for financial markets as the threat of recession combined with the spiralling cost-of-living crisis as inflation hit highs not seen for many years, and the war in Ukraine shows no end in sight,” Walter commented.

“The final straw for UK markets at the end of September was when the new prime minister at the time, Liz Truss, and her chancellor, Kwasi Kwarteng, announced the now infamous ‘mini budget’, which produced a sharp sell-off in sterling, UK gilts and equities.

“During October, following the change of chancellor and then subsequently prime minister, the majority of the previously announced ‘mini budget’ was reversed which has helped these markets recover to prior levels despite the ongoing challenges.”

See also: Abrdn re-joins FTSE 100

New share buyback policy

The firm’s discount widened to 23.7% in September, with the chair also stating the company’s limited share buybacks had proven mostly ineffective in narrowing the gap to NAV.

As a result, the firm has decided to ditch its share buyback policy of seeking to keep its discount to a 5% level. Instead, the trust will take an “investment-led” approach to share buybacks, and will only use available cash to carry out buybacks when it represents a better prospect of delivering returns than investing in other opportunities.

Walter said: “Substantial buybacks in pursuit of defending a 5% discount level would not only demonstrably shrink the company but, more importantly, would have a detrimental impact on the balance sheet and portfolio construction by reducing liquidity available for the company’s unfunded commitments.

“The board does not believe this to be in the best interests of shareholders as a whole and, as a consequence, considers that a refinement of the share buyback policy to being investment-led is merited following the revision of the investment strategy.”

Looking to the future, Walter added: “It is encouraging that markets have staged a recovery following the falls witnessed around the company’s year end in September. Throughout this challenging period, the board believes the company’s strategy, which seeks to provide a dependable quarterly dividend and capital growth from a globally diversified multi-asset portfolio, is well positioned to deliver an attractive total return with lower volatility than equities over the medium term.”

See also: Abrdn property income trust pinches pennies



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