The former BlackRock Income Strategies (BIST) investment trust has begun its new life as Aberdeen Diversified Income and Growth (ADIG ) on a high, with the shares rallying on the board’s pledge to keep the discount under 5%.
Aberdeen Asset Management took charge of the trust’s management at the weekend, after the board’s sacking of previous managers BlackRock last year, with the fund, once known as British Assets, given its second rebranding in two years.
Shares in the trust jumped 2.5% to 114.1p after the board announced a new discount control mechanism, which would aim to ensure the shares do not fall to a discount to net asset value (NAV) wider than 5%.
While BIST boasted a zero discount policy, that proved powerless to prevent the discount sliding to as much as 13.7% in the past 12 months, amid poor investment performance, expensive debt and the looming presence of Aviva Investors, which is in the process of selling its investment trust holdings, on the share register. The shares were trading at a 9.2% discount to NAV at Friday’s close.
The trust’s board had originally said that under Aberdeen’s management it would adopt ‘a more flexible approach that recognises the constraints imposed by gearing and by the more illiquid nature of the investment portfolio’.
Analysts at Numis said the more explicit discount objective now being targeted was a ‘positive’ development but said it still left room for improvement.
‘This should help to reduce discount volatility which we regard as crucial given the fund’s absolute return target,’ they said.
‘However, we still question why 5% is the right level as the fund needs to trade at asset value if it is to grow over time. In our view, the board should target a zero discount in time through an active buyback policy, even if this objective is not explicitly stated.’
As part of the revamp, Aberdeen Diversified Income and Growth is due to merge with the Aberdeen UK Tracker (AUKT ) investment trust.
The AUKT board had proposed to offer shareholders a cash exit at a 2.75% discount to NAV less costs, a higher price than the 7% discount at which the shares have on average traded over the last 12 months, capped at 40% of the share capital.
However, it has now raised this offer to 60% of their share capital ‘following further consultation with certain of the company’s largest shareholders’.
The board added in an announcement to the stock market that Aviva Investors and 1607 Capital Partners, who between them own 43.7% of the trust’s shares, had indicated their support for the proposals. Shares in Aberdeen UK Tracker jumped 2.5% to 342.8p on the news.