Aberdeen Asset Management has confirmed it is to run a combined equity income product using a barbel...
Aberdeen Asset Management has confirmed it is to run a combined equity income product using a barbell structure of equities and fixed interest, offering a dividend yield of 4.4%, writes Robert Stock.
Aberdeen plans to merge its two equity income funds into the Murray Johnstone Oeic, avoiding around £2m in stamp duty liabilities, as reported in Investment Week in April.
The move, which is due to take place next month if unit-holder approval is gained, will see the assets of the £377m Aberdeen High Income and the £180m Aberdeen Extra Income funds rolled into the £53m Aberdeen Equity Income (ex-Murray Johnston Equity Income) Oeic sub-fund.
The combined portfolio, managed by Diane Wilde, current manager of the three separate funds, will contain a significant portion of around 30% in fixed interest, as well as an equity portion required to return 30% more in yield terms than the FTSE All-Share.
The fixed interest portion of the combined fund will include low-risk instruments, such as reverse convertibles, and will be managed by Aberdeen's fixed interest team, headed up by the renowned Paul Reed.
The barbell structure is designed to give Wilde the freedom to hold stocks on their own merits, rather than invest in dying industries to achieve yield. Wilde said: 'It won't be benchmarked and it won't be holding stocks just because they are in the benchmark.'
This will also allow Wilde to invest with a more global perspective and, if necessary, to remain out of a UK sector if it looks expensive on a global basis.
The pressures of benchmarking, Wilde believes, force managers to take unacceptable risks with investors' assets simply to keep their portfolio close to the index. She gives the example of Vodafone, which hit the headlines at the height of the tech bubble and at one stage topped 10% of the FTSE All-Share.
Managers invested in Vodafone, in order to satisfy benchmarking stipulations, suffered when an active manager could have remained out of the stock during the past year. Wilde said that in the 12 months to the end of May 2001, the All-Share fell by around 6.83%.
However, Wilde said if Vodafone is removed from the calculation, the actual fall in the value of the All-Share would have been just 2.56%, indicating the huge one-stock risk taken.
Despite there being no benchmark, Wilde said her returns will be judged against her peers and, in the quarterly reporting, will be judged both on the total fund performance and the performance of the equity portion.
The plan to merge the three funds is designed to create a more marketable and less confusing equity income proposition for investors.
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