Aberdeen UK Tracker Trust and BlackRock Income Strategies Trust are set to merge, they said in November 30 statements.
The resulting trust will be managed by Aberdeen’s diversified multi-asset team led by Mike Brooks and Tony Foster. It will be known as the Aberdeen Diversified Income and Growth Trust.
It’s a “significant development” for Aberdeen Asset Management’s closed-ended fund business and multi-asset offering, chief executive Martin Gilbert said in a statement.
Aberdeen already managed 19 UK-listed closed-end funds and had £90 billion of assets under management within multi-asset portfolios.
“This appointment will take our diversified multi-asset offering to over £1 billion and we continue to be encouraged by strong interest from institutions and consultants,” Gilbert said.
The Aberdeen Diversified Income and Growth Trust will be able to make investments across equities, property, social and renewable infrastructure, emerging market bonds, loans, asset-backed securities, insurance linked securities, private equity, farmland and aircraft leasing.
It is a dramatic change of mandate for Aberdeen UK Tracker Trust, which currently aims to mimic the FTSE All-Share index. Its shares traded 4.1% below net asset value at the end of 2015. Existing shareholders who do not want to accept new Aberdeen Diversified Income and Growth Trust shares can take cash at a 2.75% discount.
An annual management fee of 50 basis points will be due to Aberdeen on net assets of up to £300 million, falling to 45bps on net assets above that threshold.
The enlarged trust will aim to generate long-term income and capital returns with lower volatility than equity markets. Specifically, it will aim to generate returns of Libor plus 5.5% per annum net of fees over rolling five-year periods and a quarterly dividend.
James Long, chairman of BlackRock Income Strategies Trust, will keep that role at Aberdeen Diversified Income and Growth Trust. Aberdeen UK Tracker Trust chairman Kevin Ingram will be senior independent director.
Wendy Mayall, senior independent non-executive director at the tracker trust, is among the departing directors. She will take up other board appointments. Mayall told FN that trackers “don’t really work in closed ended form” against exchange-traded funds, low-cost passive vehicles that do not try to beat the returns of an index .
A board review by Aberdeen UK Tracker Trust found that investors preferred to use ETFs for tracking liquid UK equity indices.
Aberdeen UK Tracker Trust said the falling demand for an index tracking mandate in closed-ended form meant its shares were persistently found to trade below the net asset value of the trust.
Aviva Investors’ status as the largest shareholder in both funds was a “key trigger”, according to analysts at Numis, who said Aberdeen UK Tracker Trust had an “outdated” mandate in a world of lower costs, while BlackRock Income Strategies Trust had to “dilute” gearing, or borrowing.
James Long, chairman of BlackRock Income Strategies Trust, said the board was “disappointed” with performance for shareholders over the past 19 months. He said: “The negative absolute returns delivered, coupled with our concerns over the sustainability of the dividend in the current low yield environment, led us to initiate the strategic review that we have now concluded.”
Asked whether tracker shareholders would suffer costs given the poor performance of the BlackRock Income Strategies Trust, an Aberdeen spokesman said the group would waive the management fee on the enlarged vehicle for the first six months.
The merger is subject to shareholder approval.