Aberdeen Asset Management and BlackRock are set to merge two trusts; the £318m Aberdeen UK Tracker trust and the £281m BlackRock Income Strategies trust (BIST), due to the lack of appetite for tracker investment trusts.
In a review of the Aberdeen UK Tracker trust, the board found investors looking for exposure to liquid UK equity indexes are more likely to invest in ETFs.
“The reducing appetite for an index tracking mandate in closed-ended form has contributed to the company’s shares trading at a persistent discount to their net asset value despite the liquid nature of its underlying investment portfolio and continued share buybacks,” the board said in an announcement.
Subject to shareholder and regulatory approval, the Aberdeen UK Tracker trust will be wound up and merged with BIST. The enlarged trust will then be renamed the Aberdeen Diversified Income and Growth Trust (ADIGT) and will have a diversified multi-asset mandate targeting returns of Libor plus 5.5 per cent annually net of fees over rolling five-year periods. ADIGT will target a quarterly dividend for income investors.
The Aberdeen board says the new trust – which will be managed by Mike Brooks and Tony Foster with the support of Aberdeen’s diversified multi-asset team – will focus more on capital stability over the medium term than the long-only UK Tracker trust, with less volatility than equities.
Shareholders will have the option of receiving ordinary shares in ADIGT or taking cash, with the latter receiving the cash equivalent of a 2.75 per cent discount to the NAV before the costs of the merger were incurred. The cash option is limited to 40 per cent of the trust’s share capital; after that investors will be issued new ordinary shares.
Aberdeen will be paid an annual management fee of 0.5 per cent of net assets up to £300m and 0.45 per cent on net assets above £300m.
Kevin Ingram, chairman of the Aberdeen UK Tracker trust, says: “We believe this transaction offers real choice for the company’s shareholders, with the opportunity to obtain exposure to a truly diversified multi-asset income and growth mandate managed by the Aberdeen team in a larger ongoing vehicle, or, should they so wish, to elect to receive all or a proportion of their investment in cash.”
General meetings regarding the merger will take place in February and March next year.