AOD and AGD Fund Update August 2023

In this episode we are focusing on dividend income with a manager of the abrdn Total Dynamic Dividend Fund, ticker AOD, and the abrdn Global Dynamic Dividend Fund, ticker AGD. 

Transcript

Paul Blane: Hello all and welcome to the latest in the abrdn Closed-end Fund podcast series where we catch up with our portfolio managers from around the globe to gain some perspective on the state of the markets and the abrdn Closed-end Funds. I'm your host, Paul Blaine, Senior Director with the National Accounts Team, and today we're focusing on actually a two for one: abrdn Total Dynamic Dividend Fund (ticker AOD) and the abrdn Global Dynamic Dividend Fund (ticker AGD). It's my pleasure to welcome Martin Connaghan, Portfolio Manager, Investment Director with the Global Equities Team. Hi, Marty, it's great to see you. 

Marty Connaghan: Hey, Paul, thanks for having me again. 

Paul: Absolutely. Marty, it would be great to start, if you would, with a general overview of the global equity markets, in particular in the closed-end fund space. 

Marty: Sure, I mean, the two funds that you mentioned, they're certainly largely similar in terms of the underlying holdings that we have within them, the primary difference being size. So AOD is much larger, has assets of a little under 900 million, and then AGD, currently a market cap of around about 230 million. So, we largely follow the same model with regards to both of those funds. There may be the odd subtle difference with regards to being able to go down a market cap spectrum with regards to the smaller fund, AGD, but other than that, they're largely similar. With regards to the closed-end funds, we see, and these two funds are no different really trading at the moment at quite attractive discounts, we would say both of them trading around about 13 and a half discount to the net asset value of the underlying holdings. Now, given what we've seen globally, with interest rates, inflation, the market environment, perhaps a little bit of macro uncertainty, you wouldn't necessarily be unsurprised to see certain types of assets seeing discounts widen. That may well make sense of some of the holdings where large unlisted private type holdings, where there still will be a revaluation element to come through. That's not the case with these trusts. These funds are large, liquid, listed equity investments. So, I think one thing that we are seeing with the closed-end funds space at the moment, is that there's some really attractive discounts on offer. Managing global funds at the moment is always a double-edged sword, really. We are glad in some ways that we're not bound by lines on a map. It gives us the opportunity to go wherever we feel the best investment opportunities lie. With that comes, you know, a lot of work in trying to cover the globe and we're welcome of that flexibility given the uncertainty because there's an uncertain world.  We see problems here in the UK, we have issues with regards to China and Asia, the geopolitical tensions and inflation. So, having the remit to go globally, and to really try to diversify and manage risk and increase opportunity, and capital gains, we're pretty thankful for that global remit. So yeah, closed-end funds offering quite attractive discounts and global funds, in particular, I think offering a welcome level of diversification opportunity at the moment.

Paul: Marty, thank you for that. So, you did answer part of my next question, but if I could ask you to maybe drill down just a little bit more. The two funds we're discussing - the abrdn Total Dynamic Dividend Fund and the Global Dynamic Dividend Fund - would you mind getting into a little bit more of their overall strategy?

Marty: Sure, so, we have a sort of two-pronged attack to achieving the investment objective. So, the investment objective is to deliver a premium level of yield and to pay that consistent level of dividend out to shareholders, and in a very consistent manner on a monthly basis. So, these funds are yielding around three and a half percent at the moment. And we deliver that yield by two ways. First of all, there is a core portfolio and that core portfolio is made up of between, you know, 80 to 100 stocks, and has a buy-and-hold approach. And that makes up about 95% of the net asset value of both portfolios, Best Ideas Quality Portfolio, and that has a rolling yield on it of about 3% at the moment. For the remaining 5% of the NAV (the net asset value), we employ a dividend capture strategy and what we do with that is trade a little bit more in and out of non-dividend events. So, here I am in Europe and during March/ April/ May-time, European companies like to pay large, attractive, annual dividends that are one off; they're not quarterly like they are in the United States. That gives us the opportunity to you know, move in and out of these companies and clip that dividend. So that 5% of the net asset value, we'll trade a little bit more in and out of non-dividend events to boost that level of yield up to its current level at the moment of eight and a half percent. So, the overall mission is really one of total return. It's a general, global exposure that you're getting, mixture of a core portfolio, buy-and-hold making up the vast majority, and then a little bit of a dividend capture strategy on the side to enhance the level of yield.

Paul: Great, well, thank you for that. If we could, I'd like to move the discussion to sectors. What sectors are you currently investing in? Where are you finding opportunities? And what sectors are you avoiding, all of that being relevant to AOD and AGD?

Marty: We try not to get too far away from what would be considered a relevant benchmark for us from the global perspective, particularly at the country level. We are bottom-up investors here at abrdn so we focus on company fundamentals and we let that drive the positioning of the portfolios. We wouldn't want to be hugely under or overweight in any part of the globe based on a macro call, because to do that, would then put the income that we're trying to generate at risk. And that would make no sense. So, it's really driven from the bottom-up. There are some inherent positions that run quite consistently within the portfolio, there is a slight underweight to the United States, and a corresponding overweight to Europe. That is largely and solely really driven by that higher level of yield that we attain from some of the European companies. That is not a European bias that we have. Just because I'm based in in the UK, my colleague, Josh, who works in these funds with us is based in New York, so we don't have that issue. There is also you know, some, at the sector level, consistent underweights, and that's largely to information technology, and more so within the software area of information technology. And again, there, we just don't really see the overall required level of yield to help us with the investment objective of these funds. But we invest across the globe. We invest across the sectors. We're not necessarily avoiding anywhere at the moment. But there is that underweight to the United States, overweight to Europe, driven by the yield, and then that slight underweight to tech to be bearing in mind.

Paul: Marty, another two-part question for you. First, can you share your thoughts on why investors listening should consider income funds and, where appropriate, should consider either the abrdn Total Dynamic Dividend Fund or the Global Dynamic Dividend Fund?

Marty: When I think about the last, you know, three years in terms of markets, you know, we've had COVID to contend with, an initial market quite sharp sell-off, lots of money flowing into the system to try and solve those issues, and then we've obviously been on a rate-tightening cycle. And that's had various impacts across economies, across globe, and across the companies that we look at. When I think about the next 10 or 15 years, I don't get to a point where I can say with any degree of certainty that I think we're going to be in a similar market environment that we were in from, you know, coming out of the GFC in 2009, all the way to 2020, where we had zero interest rates. I just don't think central banks get back there. That was a very, very buoyant time for growth stocks. And you know, since 2000, that's been a little bit more mixed. And I just don't think the next 10 or 15 years are going to be like the last 10 or 15 years. Everybody's gone a little bit more protectionist, geopolitical tensions are rising if anything, we have war in Eastern Europe, and it's a tricky, tricky market environment for all of us to contend to. Therefore, I think going forward, I think the amount that income is going to make up of everybody's total return is going to become much more important compared to how it has been for the last 10 or 15 years, when it was huge amounts of capital return with very little yield actually required. I don't think we're in that environment going forward. So, I think that yield, and where that takes you, perhaps takes you to a more balanced approach - a little bit of value, a little bit of growth, which is what these funds do. I think that's going to be a very important thing. And I think why these funds and why now, as I mentioned earlier, is those discounts that are on offer. There are no unlisted and there's no private assets in these portfolios. You can pick them up for a 13% discount to net asset value and today, and that alone, in this environment booking that sort of discount, that to me sounds quite attractive right here.

Paul: Marty, it's been great speaking with you today. We appreciate you sharing your time and your insights.

Marty: My pleasure, Paul, and thanks for having me and thanks everybody for checking in.

Paul: Absolutely. For those interested in learning more about the abrdn Total Dynamic Dividend Fund (ticker AOD) or the abrdn Global Dynamic Dividend Fund (ticker AGD), you can visit us at abrdn.com, that's abrdn.com, email us at investor.relations@abrdn.com, or call 1-800-522-5465. Thanks again Marty.

 


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