An unconstrained multi-asset portfolio: Aberdeen Diversified Income and Growth Trust

Aberdeen Diversified Income & Growth (ADIG) offers investors an unconstrained multi-asset portfolio, including a private market allocation. ADIG has access to the best ideas from abrdn’s teams across a range of assets including real assets, fixed income and credit, and equities, across both public and private markets. The trust targets dependable income and growth opportunities with a low correlation to equity markets.

In Q4 2020, a major strategic review resulted in an increasing focus on private assets, intending to increase the diversification on offer and improve returns. ADIG invests mainly in funds, and many of the underlying investments are otherwise unavailable to, or hard to, access by the typical mass-market investor.

abrdn’s Head of Private Markets Solutions, Nalaka De Silva, has managed the trust since the strategic review, alongside Multi-Asset & Investment Solutions Investment Director, Jennifer Mernagh and Private Market Solutions Investment Manager Nic Baddeley. Together, they have built a portfolio intended to provide investors an opportunity to generate capital appreciation as well as a sustainable Dividend.

The investment team is able to draw upon abrdn’s wider multi-asset and private market capabilities in order to leverage investment strategy research, access to investment ideas (particularly in private markets), and portfolio construction tools, which should enable robust asset allocation.

Over the course of this year, ADIG’s asset allocation transition has come closer to reflecting the long-term target of 55% invested into private market investments (currently c. 48%). This has increased the portfolio’s allocations to real assets offering an element of inflation protection and uncorrelated cash flow generation. This has proved positive for Performance since the strategic review and indeed over the past 12 months, as evidenced through stable NAV performance over an extremely volatile period for markets globally.
 

ADIG has seen some instability and uncertainty in recent years. However, following the strategic review performance has improved, and we think the trust now offers a genuinely diversified, resilient portfolio tilted towards real assets, with a focus on infrastructure, in addition to alternative real estate and royalties, which can provide a degree of inflation protection and sources of uncorrelated income. Such investments tend to benefit from the certainty of holding long-term capital and longer-term pricing, which are less reactive to short-term market movements and subsequently lead to reduced levels of price volatility for the overall portfolio. This may make ADIG more appropriate for the more cautious investor who can commit capital for a longer holding period, although it is important to note the strategy may underperform indexes made up of listed equities in high-growth environments. As this period of significant change for the trust comes to an end and the discount to NAV remains sticky, we believe this may provide an opportunity for investors to re-assess the investment case and provide a justifiable entry opportunity.

One of ADIG’s attractions is that it provides a genuine source of diversification and less correlated returns through its significant allocations to infrastructure with contracted cash flows, in addition to other privately held assets. This does reduce transparency around valuations and operational progress, but abrdn’s specialist private markets capabilities mean Nalaka, Jennifer and Nic are in a good position to exploit opportunities in these markets.