AGD and AOD Fund Update - February 2024

In this episode, we sit down with Marty Connaghan, a portfolio manager on the abrdn Global Dynamic Dividend Fund (AGD) and the abrdn Total Dynamic Dividend Fund. Marty breaks down the differences of the two funds and provides insight into the investment strategy. 

AOD Top Ten Holdings as of November 2023:

Apple Inc 4.0 

Microsoft Corp 3.7 

BE Semiconductor Industries NV 2.1 

Broadcom Inc 1.9 

Alphabet Inc 1.8 

Newmont Corp 1.6 

TotalEnergies SE 1.6 

Eli Lilly & Co 1.6 

Enbridge Inc 1.5 

Engie SA 1.5

AGD Top Ten Holdings as of November 2023:

Apple Inc 3.9 

Microsoft Corp 3.7 

BE Semiconductor Industries NV 2.1 

Broadcom Inc 1.9 

Alphabet Inc 1.8 

Newmont Corp 1.6 

Enbridge Inc 1.6 

Engie SA 1.5 

Eli Lilly & Co 1.5

Target Corp 1.5

Transcript

00:00:00:00 - 00:00:33:16

Mike

Hello, everyone, and welcome to the latest in the Aberdeen Closed End Fund podcast series, where we check in with our portfolio managers from around the globe to gain some perspective on the state of the markets in Aberdeen. Closed end funds. I'm your host, Mike Taggart Aberdeen's U.S. Closed and Fund Specialist. Today we have a two for one. We're focusing on both the Aberdeen Total Dynamic Dividend Fund, ticker symbol AOD and the Aberdeen Global Dynamic Dividend Fund Ticker symbol AGD.

00:00:33:18 - 00:00:57:16

Mike

With Martin Carnahan, a global equities investment director and a portfolio manager on both AOG and AG. Marty, thank you for joining us today. 

Marty

My pleasure, Mike. 

Mike

Marty, AOD and AGD look to be very similar. Can you provide an overview of the two funds explaining any differences? 

Marty

Yeah, that's a fair point. They are you know, they are very, very similar.

00:00:57:16 - 00:01:26:03

Marty

They both follow them identical models. And, you know, there are a couple of slight differences which are, you know, worth noting, the main one being size. And with that size that does a lot of it is a little bit more of a freedom with regards to some market cap constraints in terms of some of the underlying holdings. And that may well manifest itself in there being, you know, one or two or three or four maybe different holdings.

00:01:26:05 - 00:01:53:07

Marty

And between AGD and AOD, I'm just as a result of the fund being smaller. The other thing to note is that AGD does have a, you know, the stated investment objective of more than 50% equity for a qualified dividend income. But other than that, they are very, very similar portfolios. 

Mike

So when it comes to the overall strategy, then can you walk us through how you and the team construct the portfolios?

00:01:53:09 - 00:02:12:10

Marty

Yeah, I mean, we count ourselves quite lucky that we manage global portfolios, but with that comes the task of trying to cover the ground. So here at Aberdeen, me, you know, we have, you know, a global reach. We have and use the analysts that we have in North America, here in the UK and then all over Asia as well.

00:02:12:11 - 00:02:41:04

Marty

So the starting point is, you know, the regional process, if you like, in the management of the regional life portfolio is by your colleagues based all over the world. You know, we then come up that, you know, list coverage list those regional portfolios to see if we can add value, you know, by perhaps maybe doing a second round of analysis on those names where we are, you know, not constrained by lines on a map, we are free to, you know, go anywhere we wish.

00:02:41:05 - 00:03:04:23

Marty

So it is a buy and hold approach. The funds are typically 80 to 100 stocks to see, buy and hold low turnover, high conviction ideas. And that is a good balance to the portfolio as well, you know, between value and growth opportunities. You know, so feel that, you know, an income type mandate is always going to have a bias towards value.

00:03:05:00 - 00:03:25:14

Marty

And we actually look to can tell that to a certain extent and make sure that where we can have it, you know, we do have a decent allocation towards growth opportunities as well. 

Mike

And so I've heard in the past, you know, you and Josh Duitz, another portfolio manager on the fund, talk about how, you know, that's about like 95% of the core portfolio.

00:03:25:14 - 00:03:49:21

Mike

But then on this other portion to enhance the the income or the distribution component, you use a dividend capture overlay. Can you just talk about that briefly? 

Marty

Sure. And we do have that ability very often and very frequently that as no dividend capture at play at all, it really is just that core portfolio, which is the lion's share of the assets typically reside.

00:03:49:23 - 00:04:15:06

Marty

You know, if and where we are doing dividend capture that would involve us trading in and out of knowing dividends events that could be a large annual dividend that we may well get and hit in Europe, where companies typically pay one dividend annually. Or it could be a, you know, a, you know, unknown special dividend from a company that may have undertaken a corporate action or have significant cash on the balance sheet.

00:04:15:06 - 00:04:42:23

Marty

So trading and out of non dividend events with 5% sleeve on occasion, if it makes sense, then we do have that flexibility to enhance the income as you mention, because it running yield of that core portfolio is about 3%. You know, we get to almost double that by doing a dividend capture strategy. 

Mike

Yeah, it's interesting. And the portfolios do not do any option call rating to enhance that. Right?

00:04:43:00 - 00:05:07:09

Marty

That's correct. I mean, that is a valuable strategy to enhance income. The only caveat with that is that you can potentially cap the capital side of things by doing that. So by, you know, we just have this dividend capture strategy in place as a a different approach to enhance the income. And that's the strategy that's been in place for for many, many years with the use of both of these funds.

00:05:07:11 - 00:05:40:01

Mike

Right. Because the risk with the covered call strategy is that you're giving away the upside to the portfolio and then looking at the portfolios currently. Are there any geographies or sectors that you're currently overweight or underweight? 

Marty

We try not to be overly aggressive with regards to that sort of positioning our process as one of bottom up stock selection so we don't get too aggressive with regards to relative positioning around any benchmark from the country or the sector perspective.

00:05:40:07 - 00:06:14:14

Marty

With that in mind though. You know, most global benchmarks have a significant allocation towards the United States that we typically find ourselves allowed to enter the United States by around about 5%. That typically manifests itself on the flip side to a slight overweight towards towards Europe. Just as a result of that, hunt for income that we're always looking to looking to achieve so that as that slight, you know, underweight to the United States, I know offer it to Europe, the industry level again just as that natural for dividend income.

00:06:14:16 - 00:06:44:05

Marty

We do tend to find ourselves a little bit underweight information technology and we like the exposure we like the sector. And but many of the big benchmark stocks that make up significant portions of that, particularly within software, they just don't have that level of view that we're looking for. So we typically always find yourself a little underweight information technology likewise, and for very, very similar reasons, we typically find ourselves a little underweight consumer discretionary.

00:06:44:07 - 00:07:05:20

Marty

Again, nothing wrong with the companies in that industry or those subsectors, but quite often they just don't have the level of yield and to the upside or the overweight side, on the industry level, there is a slight, slight overweight to some of our like utilities. And again, it's really just that constant hope for dividends and income and yields that I was out.

00:07:05:20 - 00:07:29:06

Marty

But to stress, we try not to get overly aggressive on that relative positioning. We would rather, you know, let the stock selection speak for itself in terms of delivering the capital and the income. 

Mike

So with a slight overweight to Europe and slight overweight, it sounds like the utilities, you know, what's the outlook there for for income in the next in the foreseeable future?

00:07:29:08 - 00:07:51:15

Marty

Yeah, I mean, I think taking utilities is the first instance. Obviously, utility companies is a very asset, intense asset heavy industry in these companies do run with you know, balance sheets that require a lot of homework and looking at things at cash flow as an interest cover. And yeah, I mean, I guess if we're going to go into an easing cycle, then, you know, that could well benefit that.

00:07:51:17 - 00:08:13:15

Marty

Now, you've probably seen that to an extent already. If you look at some of the European utilities, for example, they've already started to, you know, you know, see the benefit from that. And Mr. goes to Europe as an economy. Again, it's a bottom up approach for us. While people may well be quite concerned about, you know, the economies in Europe, and I wouldn't necessarily disagree with that.

00:08:13:17 - 00:08:47:04

Marty

If you look at what the European bourses delivered last year in terms of capital returns, they were right up there alongside the United States. Difference being the United States market returns. A lot of that right up until the last quarter was, you know, really as a result of the share price performance of six or seven stocks. So we found a lot better, a lot more broad based and positive market moves from a number of the stocks that we find in Europe after perhaps trading on a better relative value to some of our North American peers.

00:08:47:04 - 00:09:10:12

Marty

So it's very frequently what the environment on the economic environment is saying doesn't always translate into how the stocks behave. Number of these multinational companies in Europe, their business operations are much more driven by Asia and the U.S. where you're perhaps not paying a pricing multiple for it. So it's about the bottom up, just to stress that. 

Mike

Excellent.

00:09:10:12 - 00:09:41:17

Unknown

Thank you. And then finally, would you share your thoughts with us on why investors should consider income oriented equity funds as a component of their overall income portfolio and either AOD or AGD in particular for their portfolio? 

Marty

Well, I think those are there's a flexibility within the global equity mandate that you perhaps don't get anywhere else. No. If everybody's or some people at times get concerned about the macro or the the likelihood for capital appreciation, and that's rightly so.

00:09:41:18 - 00:10:04:09

Marty

You know, we do have market downturns and I've seen those volatilities increase for UPS. You know, the last few years. Dividends have never vanished everywhere all at once. That has just never happened in history. You may well get an issue in a sector. And if you go back to, say, the GFC, yeah, absolutely. In the financial sector there was absolutely issues with dividends, but not everybody else.

00:10:04:14 - 00:10:31:04

Marty

Dividends and staples and health care were absolutely resilient and it's the same at the regional level. If you go back to see Covid, you know, Covid in dividends in Europe, dividends in the UK were down 30 and 40% respectively, but they were up 5% in the United States. So having a global equity income and they can shoot a degree of flexibility because dividends have just never vanished everywhere all at once.

00:10:31:10 - 00:10:56:03

Marty

If you have a market downturn, the capital does. If markets go down, the capital does go down, and very often it does go down every year. But the income never, never really does that. The other point I would make is that if you think of the long run in return for equity markets, say, since the turn of the century, you get into an annualized return of about 5.7% and about 60% of that is made up from income.

00:10:56:05 - 00:11:24:22

Marty

Now, absolutely. And the meter has three seasons coming out of the GFC and 2009. The annualized returns up at about 11%. But the lion's share of that, about 60% also coming from capital appreciation. But thinking forward, what sort of environment do we think we're going to be in? Is it going to be the same sort of environment that we've been in the last ten or 15 years with absolutely zero rates and a very, very competitive environment with regards to central banks?

00:11:24:24 - 00:11:48:00

Marty

I'm not so sure about that. So you're not thinking about how much then the reinvestment of dividend income could make up of your overall total return? I think that makes the case for a global equity income. That and the flexibility that affords you. And the final point I would make is that these both of these funds are actually trading a very attractive discount compared to the ten year average.

00:11:48:01 - 00:12:12:08

Marty

You have to also take that into account when thinking about the opportunity for capital appreciation alongside the income. So I think those three things should make a global equity income mandate worthy of consideration. With regards to your income allocation. 

Mike

Yeah, those are great points. And also, you know, the discount serves to increase the yields that the portfolios themselves generate, right?

00:12:12:08 - 00:12:29:17

Mike

Because price is trading lower than the NAV, hence the discount rate. The price yield is going to be higher than the NAB yield. So you get that benefit as well from the discount. So it's a it's a good thing. Well, Marty, thank you very much for that update. It's always a pleasure hearing from you and thank you for your time today.

00:12:29:19 - 00:13:02:05

Marty

Thanks very much. My pleasure. 

Mike

And thank you, everyone, for listening to this podcast. There are three convenient ways to learn more about AOD and AGD. On the Internet. For the Aberdeen Total Dynamic Dividend Fund, ticker symbol AOL. Visit A, B, R, D N, AOD.COM for the Aberdeen Global Dynamics Dividend Fund. Ticker Symbol AGD. Visit A, B, R, D, N, AGD.com

00:13:02:07 - 00:13:35:16

Mike

You can email us at investorrelations@abrdn.com, or give us a call at one 800 5225465. I’m Mike Taggart of Aberdeen. Thank you for listening.

00:13:35:18 - 00:14:02:18

Unknown

This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for informational purposes only and should not be considered as an offer, investment recommendation or solicitation to deal in any of the investments or products mentioned herein and does not constitute investment research. The views in this podcast are those of the contributors at the time of publication and do not necessarily reflect those of Aberdeen.

00:14:02:20 - 00:14:29:12

Unknown

The companies discussed on this podcast have been selected for illustrative purposes only or to demonstrates our investment management style and not as an investment recommendation or indication of their future performance. The value of investments and the income from them can go down as well as up, and investors may get back less than the amount invested. Past performance is not a guide to future returns, return projections or estimates, and provide no guarantee of future results.

AOD Top Ten Holdings as of November 2023:

Apple Inc 4.0 

Microsoft Corp 3.7 

BE Semiconductor Industries NV 2.1 

Broadcom Inc 1.9 

Alphabet Inc 1.8 

Newmont Corp 1.6 

TotalEnergies SE 1.6 

Eli Lilly & Co 1.6 

Enbridge Inc 1.5 

Engie SA 1.5

AGD Top Ten Holdings as of November 2023

Apple Inc 3.9 

Microsoft Corp 3.7 

BE Semiconductor Industries NV 2.1 

Broadcom Inc 1.9 

Alphabet Inc 1.8 

Newmont Corp 1.6 

Enbridge Inc 1.6 

Engie SA 1.5 

Eli Lilly & Co 1.5

Target Corp 1.5