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Interviewer: Hello, and welcome to the latest in the Aberdeen Standard Investment Trusts podcast series. With me today is James Thom from the Aberdeen New Dawn Trust. We'll be talking about the recovery in Asian economies and how he's positioning the fund in this new environment. Welcome, James, I wonder if we can start by looking at the big picture across Asia – are you finding that economic recovery is in full swing there?

James: It is looking very encouraging. I think Asia is now clearly benefiting from the way in which it handled the pandemic through the course of last year. And an economic growth is racing back. And if you think about the two big kind of economic engines in the region, even last year, China managed to eke out 2% GDP growth, and that momentum is kind of continuing through to this year. India was pretty hard hit by the pandemic, but it has seen a remarkable rebound with case numbers now down substantially in the fourth quarter and into this year. And that has allowed the economy there to open up far quicker, I think, than anyone had expected. And across the region, you know, they're certainly not totally out of the woods. So some of the countries are still struggling and growth is still not there. But overall, I think the picture is pretty encouraging.

Interviewer: And there was speculation ahead of time about what the recovery might look like. Are there really noticeable characteristics about the recovery - any areas that have been particularly weak or particularly strong and any surprises?

James: I'm not sure, it's been sort of particularly surprising in the way in which it's playing out. So as you would expect, the sectors that were hardest hit by the pandemic are those that are now sort of coming back most strongly. So if you think you know, anything sort of consumer discretionary related, you know, we're seeing quite good growth come back there, whether it's, you know, auto sales, or retail, restaurants, those sorts of things. Maybe the bit that has arguably been a little surprising has been the sudden rebound in the kind of commodities area. So, metals and mining and oil and gas has come back quite strongly on the expectations that economies are going to continue opening up and demand is going to come back. So we're seeing that play out. And meanwhile those sectors that were kind of seen as beneficiaries, through the pandemic, have continued to perform pretty strongly. And that almost feels now like a bit of a sort of structural improvement. So if you think about the internet sector, ecommerce, the tech space, we’re still seeing very good performance there.

Interviewer: And what do you see as the big risks today? Is it still a revival in outbreaks of the virus? Or are there other things emerging that you're looking at just as closely?

James: The number one risk is still very much the pandemic and another wave. And, you know, as much as I said we've seen a dramatic drop in case numbers in India just in the last couple of weeks, we've seen, unfortunately, numbers pick up again. So still fear and concern there. We'll have to see how that plays out. Obviously, the vaccine developments are key here and India is now rolling that out much more quickly than it than it had been initially. So yes, vaccine and the virus still front and centre of the risk register, if you like. I think the one that's kind of reared its head that wasn't there previously, is now concerns about inflation and rising rates. We've seen the sort of yield curve pick up a bit. And so concerns that maybe Asia is on the cusp of another so called taper tantrum. If you think back to 2013, when the Fed sort of changed course in terms of monetary policy. I don't think we're there yet. And I think Asia is in pretty good shape, actually. But certainly, there's quite a bit of thought now going in to what this all means for Asian markets and economies. And then the third one would just be, you know, the continued concerns around geopolitics and relations in particular between the US and China and how that's going to unfold under the new White House administration.

Interviewer: If we could turn to the fund now, and the fund’s quality focus certainly helped during the pandemic. Have you shifted the focus at all as the economy recovers, perhaps moved into more cyclical areas?

James: Yes, a little. I mean, I would say that the focus on quality hasn't changed. So you know, I think there is no substitute for quality, particularly in Asian markets, where there are sort of risks to the downside. So we're still very much focused on quality companies. But yes, from a sort of sectoral standpoint, we have rotated a little to reflect that the opening up of economies and the growth that we're seeing coming back in some of these more cyclical sectors, as you said, and in the commodity space, as well. So, so yes, we've kind of reflected that a little bit in the portfolio in recent weeks and quarters.

Interviewer: And anything else you'd say about the current theme running through the portfolio and trust positioning?

James: So I would say I mean, overall, the portfolio remains a well diversified portfolio. So whilst we have still probably a third of the portfolio in China, and we're still positive on the China growth story, we have substantial positions across North Asian economies and markets, in India and in Southeast Asia. From a sector standpoint, we've got quite a significant exposure to the tech sector, as I said, that had been kind of resilient through the pandemic, but we've seen it continue to perform very strongly. So I think we're still positive on the outlook there, both on the internet sort of side of that sector and on the sort of tech hardware side where growth remains very robust. But otherwise, I think, you know, thematically, probably the new, or the newest theme that we've been thinking about and positioning around somewhat is the sort of shift to a greener economy and renewable energy and a move to electric vehicles, and all these things, which is, as we're seeing across the globe, you know, in Asia is gathering real momentum. And there's some great companies in this part of the world that we have the opportunity to invest in.

Interviewer: And what about the longer term themes in Asia that have sort of been recurring over the past decade or so - things like infrastructure and the growth in the middle class and urbanisation? Has the pandemic changed any of those at all?

James: My sense is, is not. I think those you know, those remain very real, long term structural growth drivers for the region. Asia is still in need of significant infrastructure build out - urbanisation is still a very real phenomenon, you know, maybe less so in somewhere like China today, given the huge progress they've made there. But if you look to a market like India, urbanisation is still very real and very much happening. And there's still a huge paucity of sort of housing, for example. So demand for infrastructure service providers, cement companies, paint companies, you know, we're seeing very good growth still in many markets there on that theme. And, the rise of the Asian middle class is continuing and continuing to drive growth and aspirational consumption. And we have quite a number of stocks in the portfolio that are a play on that still very kind of resilient themes.

Interviewer: Asia is has been quite resilient over the past year, particularly in China. Is that reflected in higher valuations for Asian companies? Or are you really seeing sort of valuations on a par between both kind of relative to their history and relative to the rest of the world?

James: So valuations have run up a bit. The markets have performed well and continue to perform well. Earnings are catching up but there has been a rewriting in valuation multiples. And I think it's fair to say certain parts of the market do look a bit frothy at the moment. And we are seeing quite a lot of new IPOs and issuances taking advantage of that. But overall, if you kind of chart valuations relative to their long term history, they're a little bit above that long term average, but not, you know, materially so, so they don't look overly stretched. And I think the key is that we see the earnings growth come through to support those multiples. So that's, I guess, the sort of the risk to this. But notwithstanding that, I would argue that Asia still looks pretty attractive, versus global equity markets, and certainly versus US markets. With the region trading on a still very wide discount versus those markets. I think there's the relative attractiveness is very much that still.

Interviewer: And you mentioned earlier that you have around 1/3 of the portfolio in China. Is that focused on any particular kind of stock or are there things that China is doing particularly well?

James: Well, it seems to be doing a lot of things very well. And there are multiple themes to our exposure in China in the portfolio. One is very clearly the internet sector. So one of our core holdings remains Tencent and that is still seeing very strong growth. And there are multiple drivers there, you know, everything from gaming revenues to online advertising, to FinTech now, so that remains a fascinating and highly innovative space with a lot of growth opportunity. As I mentioned, you know, that rising middle class, that's still very much a real trend in China, and the aspirational consumption that comes with that. So we have two or three holdings that are at play on that theme. We've got a couple of holdings in the healthcare sector. And again, China's been quite innovative, particularly in the biotech space. And I mentioned, renewable energy, obviously, China's just made this key pledge to be carbon neutral by 2060, which is a long way off, but the amount of investment and capital expenditure that we think that shift is going to require will be huge. And therefore we're seeing a lot of growth and investment into some of the China companies. And that's reflected in the portfolio as well.

Interviewer: And you mentioned the new US administration. Obviously, it was quite a tetchy relationship under the previous administration. But do you have any geopolitical concerns about China? And if so, how do you manage that in the portfolio?

James: So I think those concerns are still there. Yes, there's been a change in administration. And, you know, the hope is that we'll have a slightly more diplomatic relationship now. Less confrontational, but I think that the tensions aren't going to go away. And there is sort of broad based support for them politically on both sides of the house in the US. So I think and, you know, notably, in the first few months of the administration, Biden has not rolled back any of the sort of key sanctions, if you like, that have been placed on China under the prior administration. So there's been no relaxation, we're waiting to see whether there'll be a further escalation - my sense is that there could well be. So you have to be kind of alive to those risks, I think we, for our part, tend to focus on the companies and ensure that we're in the best quality companies that can sort of withstand any turbulence. But also, you know, when you look at our exposure, in China, a lot of it is kind of domestic focus. So we don't have a lot in companies that are kind of trade dependent or export dependent, or are sort of more politically sensitive, if you like. We tend to kind of shy away from those and I think that helps insulate us in the portfolio overall from some of the sort of real volatility here.

Interviewer: Okay. And I wonder if we could just wrap up by talking a little bit about what the last 12 months has done to the long term argument for Asia. And, you know, whether that's still kind of firmly in place, whether it's actually potentially got stronger?

James: Yes, I think I mean, there is an argument to be made here that Asia, well, if it doesn't emerge stronger in absolute terms, I think it may very well emerge stronger relative to the rest of the world. If you think about the sort of strength of the economies in Asia, in contrast to much of the developed or Western world. Asia, given the way that they've handled the pandemic, they have pumped stimulus into the economies to support them through this tough period, but not to the same level or extent that we've seen in western economies. As a consequence, they're much less indebted, and will emerge in a far stronger position from this as a consequence. And Asian central banks have largely pursued orthodox monetary policy since the global financial crisis going back a number of years now, so they still have no monetary policy levers at their disposal to keep stimulating the economy should they need to. And as I've already commented, Asia is racing back into growth and remains the fastest growing part of the world. And that will also continue to position it very well. And, you know, all of those long term structural drivers that we've talked about already, I think remain intact, coupled with the huge innovation that we continue to see in this in this part of the world and that's only accelerating - so I remain as positive on the region as I ever was, if not more so.

Interviewer: Great. Okay, thank you so much, James, for those insights. And thank you to our listeners for tuning in. Please check into the website, which is www.newdawn-trust.co.uk for any more information, and please do look out for our future episodes.

This podcast is provided for general information only, and assumes a certain level of knowledge of financial markets. It is provided for information purposes only and should not be considered as an offer, investment recommendation or solicitation to deal in any of the investments or products mentioned herein and does not constitute investment research. The views in this podcast are those of the contributors at the time of publication, and do not necessarily reflect those of Aberdeen Standard Investments. The value of investments and the income from them can go down as well as up and investors may get back less than the amount invested. Past performance is not a guide to future returns, return projections or estimates and provides no guarantee of future results.

Podcasts from Aberdeen Standard Investment Trusts, invest in good company.

Alan: Welcome to this podcast today. My name is Alan Brierley and I'm responsible for the investment company research product at Investec. Today I'm talking to Charlie Luke, who is the manager of Murray Income. Charlie and his team have constructed an excellent long term track record. In a recent research report, we found that over five years, the NAV total return of the company is ranked 4 out of 100 UK equity income closed and open ended funds. Firstly, would it be possible to give an overview of Murray Income, including your investment philosophy and process?

Charlie: Hi, Alan. Yes of course. So Murray Income is an investment trust which sits in the AIC UK equity income sector. Following the combination with Perpetual Income and Growth Investment Trust, we now have gross assets of over a billion pounds. And the investment objective is to do three things. Firstly, to deliver a high yield, and the current dividend yield is just over 4%. Secondly to grow the dividend, which the Trust has achieved for 47 consecutive years. And the third objective is to generate capital growth and the Trust has outperformed the FTSE All-Share over 1, 3, 5 and 10 years since I started to manage the trust which was back in 2006. Then I would like to describe the investment proposition as being focused on the three ‘D’s. And they are our aspiration to be dependable, diversified and differentiated. So, dependable through a focus on high quality companies providing resilient income streams and strong capital growth potential. And when we say high quality, we're thinking about the company's business model, management, financials and ESG credentials. We're also dependable in the sense that we benefit from the large ASI UK equity team, which is probably the best resourced team in the UK market. That allows us to cover all the companies in the FTSE 250 with our own in depth research, and we have excellent corporate access. And then finally, in terms of being dependable, we have a patient buy and hold investment approach, which allows the fundamentals to win out, which has proven itself over time. Then the second D is diversification - being diversified. And I think one of the lessons of 47 years of consecutive different growth is that it isn't necessarily wise to put all of your eggs in one basket. So we have a shortfall diversification by sector, by income and by capital. We’re also diversified because we can invest up to 20% of gross assets in overseas listed companies, which is helpful in terms of diversifying risk in some of the sort of concentrated sectors in the UK market but also providing access to great quality companies and industries that you can't find in the UK. And at the moment the overseas listed holdings account for around about 15% of the portfolio. We’re also diversified in the sense that we want to help exposure to mid cap companies, which is where the team's research really comes into its own. And mid cap companies currently make up just over a third of the portfolio. And then finally, in terms of diversification, we also have a very simple low risk option writing programme, which has been tried and tested for over a decade. And that's carried out in line with our fundamental analysis and research. And that helps to modestly diversify our income and also provides the headroom to invest in companies with lower starting yields, but better capital and dividend growth prospects. And then the final day D, the third D, is differentiation. And we acknowledge that there are a lot of UK equity income funds out there. But we think we're differentiated by the focus on good quality companies, our diversification, the overseas holdings, a really strong focus on ESG, the healthy mid cap exposure and as well as our option writing. And if you unite all of those characteristics together, you end up with a portfolio that provides an attractive dividend yield, the potential for capital and income growth has demonstrated capital resilience in challenging markets and some good performance but I think particularly good performance on a risk adjusted returns basis.

Alan: Excellent. Thank you very much. At a time when concerns have been expressed about managers over reaching for yield, could you talk a little bit about the relationship between capital growth and dividends?

Charlie: Yeah, absolutely. I think that's a really important point. So I think to my mind, I think that capital growth and dividends go hand in hand. And the reason for that is the simple premise that over the long term, if a company is going to grow its dividend, it needs to gross its earnings. And I think good quality companies are best placed to do that. So we want to avoid investing in companies simply because they have high dividend yields, which you find more often than not end up being cut, and think much more about the underlying ability of the companies that we invest in to grow their earnings, and therefore to grow their dividends over the long term. And I think as an aside, we find that one of the benefits of good quality companies tends to be that in more challenging times, they have greater earning stability, which leads to a much higher likelihood that they will maintain or increase their dividends. And in better times, income investors in good quality companies tend to benefit because these are the sorts of companies that usually have strong balance sheets, and that capital can be returned to shareholders in the form of special dividends.

Alan: Okay, thank you. Last year, the boards of Murray Income and Perpetual Income and Growth announced plans to combine the two companies. This has created one of the largest UK equity income investment companies. Could you advise how things have bedded in?

Charlie: So firstly, I should say that, you know, we were all absolutely thrilled to be chosen by the board of Perpetual Income and Growth and I'm pleased to say that shareholders are now benefiting from a lower management fee and ongoing charges per share, better liquidity and narrower spread, and hopefully a high profile which should make it easier to grow the trust organically. Things have bedded in very well, the whole process was made easier because the Perpetual Income and Growth portfolio was actually aligned with Murray Income before the combination. So we haven't inherited any illiquid or unquoted holdings, just the companies that we wanted to own.

Alan: Okay, thank you. We expect the closed end structure to provide inherent competitive advantages, such as the ability to focus on managing money rather than inflows and outflows, use gearing and the use of revenue reserves to smooth out dividends. Can you talk about these in the context of the pandemic?

Charlie: Yes, sure. So, as you say, investment trusts have a lot of competitive advantages, both in absolute terms and also relative to their open ended cousins. So investment trusts have an independent board and they’re accountable to shareholders. And Murray Income is fortunate to have an excellent and very experienced board with a diverse range of skills. As you say, trusts can gear or take on borrowing to potentially enhance returns over time. We've been very conservative in our approach and currently have gearing of around 10% and that needs to be thought about in the context of a portfolio that is less volatile than the market as a whole. Charges are generally lower, so Murray Income has a tiered fee structure with net assets over 450 million pounds charged at just 25 basis points. So the overall management fee for Murray Income is below 40 basis points which is very competitive, and I think helps to demonstrate that the board is doing a good job for shareholders. Also as you say, investment trusts have broadly speaking permanent capital. So distractions of inflows and outflows on a daily basis are generally not something that needs to be worried about. And then one of the main benefits of investment trusts is the ability to retain surplus income and smooth dividends, unlike open ended funds, which need to pay everything out and that has been helpful over the last year throughout the pandemic and has allowed us to maintain our long track record of dividend growth by dipping into our reserves.

Alan: Okay, focusing on the sustainability of the Murray Income dividend – can you talk about the outlook for dividends for both your portfolio and the wider UK market and also the strength of the revenue reserve accounts.

Charlie: Yep, so I'm not that optimistic about a rebound in dividends for the wider market. I think a lot of companies have been over distributing and now have other priorities which might be investing in their businesses or paying down debt. So you've seen large cuts from some significant dividend payers such as Imperial Brands, or Shell, that will take many, many years to regain their prior levels. I think a recent Link report suggested it could be 2025 at the earliest before dividends reach their 2019 level. And I think it may well take considerably longer than that. But I think, you know, if there is good news, quite a few companies that have cut their dividends have at least returned to the dividend list, and many others have signaled their intention to do so. For the Murray Income portfolio, we think the income generated by the portfolio in calendar 2020, will have fallen by around about 15% compared with 2019. And that compares to the dividends paid by the market which according to Link fell by 44%. So far more resilient, given the focus on good quality companies with strong balance sheets. And in the Murray Income portfolio, nearly all of the companies in the portfolio that have suspended their dividends have either started up again, or have said they will do so very shortly. I'm much more optimistic about the ability of the portfolio to grow its dividend on a sustainable basis rather than the market because, as I said before, good quality companies tend to have structural growth opportunities to help grow their earnings and can actually benefit from more challenging periods such as this. And then just to answer your question about the strength of the revenues. One of the quirks of the accounting with the Perpetual Income and Growth transaction was that we couldn't combine the two revenue reserves, so the Perpetual Income and Growth revenue account was paid out to shareholders as special dividends. So we have the Murray Income revenue reserves for the larger trust but the revenue per share has been diluted, and shareholders have given us permission, like actually like many other trusts in the sector, to pay dividends out of capital. Our forecast suggests that we won't - that won't be something that we will need to do. So we think we can continue to modestly grow the dividend while reveal rebuilding the dividend cover. But it is actually something that's useful to have the ability to pay out of capital, just as an option.

Alan: Thanks. And finally, for many investors, the UK has reached almost pariah status, with valuations at historically extreme levels. Can you talk about portfolio construction and where you see the greatest opportunities looking forward?

Charlie: Yes indeed and nobody likes the UK market. Global and European equity funds UK holdings are close to multi year lows, while valuations, even if you adjust for sector differences, are more attractive than many other regional equity markets. So to my mind owning mostly UK listed investments is a significant opportunity, particularly as we now have a Brexit trade agreement with the EU. And it looks as though our vaccine programme is going well compared to other countries. And we're also fortunate that there are lots of good quality companies listed in the UK that are still paying attractive dividends. So perhaps unsurprisingly, I think a quality income strategy focused on the UK makes a lot of sense. So to go into that in a little bit more detail. Clearly, it's been a very tough year – a tough 12 months for income investors. But I think it's important not to forget that income investing is still very important and meaningful. So you receive a significant part of the total return from the dividend, the yield acts as a valuation backstop, the dividend is a touchstone for the health of the company. And it also helps to reduce agency risk. Quality is also likely to remain very relevant given the world of modest growth, low interest rates, high debt and a lot of pressure on corporate profits. And I think there’s three reasons for that. So, we should see a premium for companies capable of delivering healthy yields and growing their dividends. So for example in the portfolio, we own Close Brothers, Intermediate Capital, Unilever, property companies such as Sirius Real Estate, Safestore and LondonMetric which fit into that bucket. Secondly, companies with strong balance sheets that can undertake M&A or continue to invest through the cycle should emerging in strong competitive positions. So examples of those sorts of companies in the portfolio will be Croda, Rentokil, Sanne, Mondi and Euro Money. And then finally, earnings growth in a world of modest growth is likely to be prized more highly than ever. So companies with sustainable competitive advantages and pricing power should benefit disproportionately. And again, companies in the portfolio that play to that that theme are the likes of XP Power, Dechra Pharmaceuticals, Smith and Nephew, Relx and Fevertree. So to sum all that up, I think that UK equity income with a focus on good quality companies is a very attractive and currently under appreciated place for investors. And a large and liquid investment trust is a very appealing vehicle for accessing that. And actually there's a lot more information about the trust on our website, which is www.murray-income.co.uk.

Alan: Excellent. I think that's a very clear message Charlie, thanks so much for your time today.

Charlie: Thank you, Alan, and thank you to all the listeners.

This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for information purposes only and should not be considered as an offer investment recommendation or solicitation to deal in any of the investments of products mentioned herein and does not constitute investment research. The views in this podcast are those of the contributors at the time of publication and do not necessarily reflect those of Aberdeen Standard Investments. The value of investments and the income from them can go down as well as up, and investors may get back less than the amount invested. Past performance is not a guide to future returns. Return projections are estimates and provide no guarantee of future results.

Podcasts from Aberdeen Standard Investment Trusts - invest in good company.

Interviewer: Hello and welcome to the latest Aberdeen Standard Investment Trusts podcast. Today I'm talking to James Thom, manager of the Aberdeen New Dawn Investment Trust. And we'll be discussing the Trust's results along with the outlook for the trust portfolio as we head into 2021. Welcome, James. And so let's start by looking at the results. And can you give us some top level messages that investors should be taking away from this year's performance?

James: Yes, I mean, it's been a remarkable six months, all things considered, with markets in Asia up surprisingly strongly over over six months, despite all the economic and financial turmoil that's resulted from the covid 19 pandemic. And really, it's been driven by a gradual reopening up of the economies. Here post lockdown, and large parts of the region getting the virus under control. And of course, there's been significant stimulus as well, both fiscal and monetary. And against that backdrop, the trust has managed to keep pace and actually slightly outperform the overall market for the six month period. And really, I think that's just a testament to the quality and resilience of the portfolio's holdings, and our bottom up stock selection process. And really, that's come to the fore, most notably in in some of the North Asian markets. So in countries like Taiwan, South Korea, and China, that's where we've seen some of the strongest returns in the portfolio. And from a sector standpoint, we've seen very strong performance in the tech sector be that internet or the hardware sector and in the healthcare sector. So I think that that's all contributed to the performance over this period. And coupled with the fact that we have really just doubled down on our focus on quality. So where we had any question mark on conviction on a stock investment thesis and the ability for a company to weather the storm. We weeded that out and really just focused on the best quality names in the region. And that has worked nicely for the trust.

Interviewer: And it's obviously been a very unusual year and the situation has been very fluid in terms of repositioning the portfolio, what have you generally been pleased that you did and is there anything you wish you'd done differently?

James: Hindsight is a wonderful thing, isn't it? Something we would love to have done was pulled back more aggressively than we did in in the stocks and sectors that have been impacted the most by the pandemic. But overall, in general, I think I'm pleased to say with how the portfolio has weathered this very dramatic period. So the quality of the stocks now has held up are focused on strong balance sheet. Companies with experienced management teams, strong market positions, these are the sorts of companies that have weathered this the best. So, that's been encouraging. And I think when you look at the performance of the trust, there's been a nice alignment over this time period between where our conviction lies from a stock perspective. And those, larger higher conviction positions, many of them that sort of top 10 holdings in the portfolio, driving a lot of the returns over this period. So that's, that's been good. And we were responsive to the pandemic and thinking about which sectors and which countries were going to be impacted the most by this. And we did react and call back to markets that were struggling to get control of the virus, like India, or some sectors that have been particularly in past like financials, of course, in retrospect we should have done more. But I'm pleased that we did that. And I think the final point I would just make here is that where there was a lot of volatility in markets, and we were able to take opportunity of some of that weakness in particular to buy either stocks that we own already, and to buy more at those prices or to initiate new stocks in the portfolio at attractive valuations.

Interviewer: Okay, and what does the fund positioning look like today, I mean, is it quite different to a year ago, or have you got the same kind of themes running through it?

James: So the underlying approach remains the same. Still very much a focus on quality stocks and identifying and holding those long term compounders. So that that hasn't changed. And it remains a very high quality portfolio. And it remains a nicely diversified portfolio, which I think is important during uncertain times like these, having said that, responding to the volatility that I that I was talking about a minute ago, we have managed to add quite a number of new stocks to the portfolio. So we've seen our exposure to China increase a bit over this period. And in contrast, we've pulled back somewhat in India and Southeast Asia, we've increased the exposure and found quite a number of new holdings, interestingly, down in Australia and New Zealand, which is part of the broader trust mandate within the Asia Pacific ex Japan mandate, and we saw quite abrupt share price corrections in the early part of the period. And that was a value opportunity, if you like to buy some names there. So we now have more in in those markets. We've got more in the technology sector, right across, internet hardware software, and also more in the healthcare sector as well. Many of these stocks have been actually beneficiaries of pandemic, interestingly.

Interviewer: Right. What about looking at Asian markets in general? I mean, it looks like Asia has come out of this first. Do you believe that economic recovery is reasonably well established? Are you confident going into 2021?

James: So yes, it does feel reasonably well established. But at the same time, it still feels a little fragile. So as with everywhere, the region is still prone to second, third or even fourth waves of the virus. And we've seen that in certain markets. But certainly relative to the rest of the world. I agree. I think Asia is looking comparatively in pretty good shape. And it is growing. Amazingly, if you think about what the what the region has been through, but China this year is forecast to grow a little over 2% increase in GDP growth terms. Taiwan should post just positive growth, Vietnam as well. And that's quite a stark contrast really to many parts of the rest of the world where we've seen very steep declines in GDP growth. So the region isnt out of the woods yet. And there's still quite a lot of restrictions in place, of course. I think relatively speaking, Asia is looking in fairly good shape.

Interviewer: And your latest update, you said that country and sector divergences could become more pronounced as Asia progresses through the economic recovery. I wonder if you could talk about that, and why you think that's the case?

James: Yes, I mean, I think this is a really interesting topic. And it's not obviously not as relevant to Asia. But you know, the question of whether COVID, and the pandemic, will have a lasting kind of structural impact on on economies and sectors and companies. And we're all trying to work out or work through that and decipher what it all means. And I think the answer is probably it does. And we're already seeing certain sectors, emerge as winners and others as sort of casualties if you like. So I think we've definitely seen the pandemic as a sort of catalyst for that shift from offline to online with Internet companies, benefiting. We've seen IT services companies, which is a large industry out here, has benefited from clients, increasingly moving towards cloud based solutions and needing help to implement that. We've seen diversification of supply chains, with multinationals wanting to have more than just, one supplier and not be quite so dependent on China, for example. And we've seen companies respond, as well in delivering cost reductions, but also just moving things to digital ways of working, which has increased efficiencies as well. So I think there are winners and losers. And we're still trying to work through what all this means. But I think the other interesting point here is just how Asia emerges relative to the rest of the world. And I think Asian growth is coming back. There will be less debt in Asia versus other parts of the world, interest rates, yes, there's been stimulus, but there's still room to cut. And I and I do wonder whether, relatively speaking, Asia emerges from there, compared to much of the rest of the world from this crisis.

Interviewer: And presumably, some of the themes that have driven Asia. To this point, the longer term themes like urbanisation and wealth management and new increasing middle class, presumably, those are all still kind of firmly in place. I mean, how are you playing those in the portfolio?

James: Yes, they are. And we are, well positioned to play many of those long term structural themes. So you mentioned urbanisation where we have quite a big exposure to cement companies, which are obviously involved in the construction of housing and so on infrastructure. Quite a big exposure to the financial services sector, which is a play on rising wealth levels and demand for basic sort of financial products, and so forth. But we've also been given quite a lot of thought to newer trends and themes, and how we should position around those. So we're seeing a lot happening here in the sort of tech sector, you know, very strong growth, still in demand to kind of high cloud computing, data centres, cloud solutions, and everything into 5G and artificial intelligence. Asian companies are leading the charge. And in that area, in many cases, particularly in the semiconductor space we've got a big exposure to that in the portfolio, the internet sector, we're well positioned there. And a big push more recently, on to all things green related and, you know, the drives for electric vehicles and so forth. And again, we're well positioned, owning some of the electric vehicle battery makers, for example, in the portfolio.

Interviewer: And what about the outcome of the US election? It could a change of administration make any difference to Asian markets?

James: I think on balance, the Biden victory, and the prospects of the Biden White House is, is on the margin positive for Asia. Obviously, the one of the big sources of uncertainty over the last couple, more than a couple of years now has been relations between the US and China and the trade war. And obviously, that's morphed into a broader set of issues. And I think it's been the style and approach that Donald Trump has adopted in dealing with China. That's fueled a lot of the uncertainty for the markets. And the expectation is that while these pressures or intentions aren't going to recede or go away, There is pretty broad bipartisan support, I think, for these measures in the US, our expectation is that Biden, and his administration will be a little bit more predictable, a little bit more diplomatic, a bit more multilateral, in their approach to dealing with China, which I think will help. And I expect, also that we're seeing some US dollar weakness on the back of the election outcome, if that remains in place. Generally, that's positive for capital flows into Asia and emerging markets as well. So I think, on the margin, this is this is a positive outcome for the region.

Interviewer: Okay. And so as we put a rather dismal 2020, behind us, are you reasonably hopeful for a better 2021?

James: Yeah, no one wants to repeat 2020. And I think that's not certainly what we're expecting, obviously, as I said, the region does remain, you know, prone to further waves of the virus. But I think now with the vaccines on the horizon, and the generally good job that Asia has done in bringing the virus under control, that looks considerably more promising and optimistic. And as I say, that is driving a recovery in growth in this part of the world, economies are getting back on their feet. And that is being feeding down through corporate earnings. And the market is expecting and forecasting quite a considerable rebound in earnings growth for next year. And when you contrast that with valuations, yes, the markets recovered quite strongly this year. But still, overall, valuations don't look overly demanding. And certainly relative to global equities, I think Asian equities look pretty attractively valued. So I think all of that combines to a quite optimistic outlook as a base case for next year.

Interviewer: Okay, great. Thank you so much, James. Let's hope for less eventful 2021. And thank you to our listeners for tuning in. And please check into the website, which is www.newdawn-trust.co.uk And please do look out for future episodes.

Important information:

This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for information purposes only and should not be considered as an offer investment recommendation or solicitation to deal in any of the investments of products mentioned herein and does not constitute investment research. The views in this podcast are those of the contributors at the time of publication and do not necessarily reflect those of Aberdeen Standard Investments. The value of investments and the income from them can go down as well as up, and investors may get back less than the amount invested. Past performance is not a guide to future returns. Return projections are estimates and provide no guarantee of future results.

Podcasts from Aberdeen Standard Investment Trusts - invest in good company

Interviewer: Welcome to the latest in our Aberdeen Standard Investment Trusts podcast series. With me today is the manager of the Aberdeen New Thai Investment Trust, Orsen Karnburisudthi. We'll be talking about how Thailand is recovering from the pandemic and whether recent political developments are likely to have any impact on the company. Welcome Orsen. Now, economic data appears to be improving in the region, are you generally confident that the recovery is building momentum?

Orsen: Yes, if you look at Thailand, the GDP growth has recovered from the second quarter, the second quarter GDP decreased 12% year on year, the third quarter is still down compared with the third quarter last year, but down less with 6.4%. This is better than expectations of 8 to 9%. And if you look at GDP growth for the full year, the growth would be about minus 6%, which is much better than estimates earlier in the year at the peak of the Covid pandemic in March and April. Much of this will come from government spending. These have been strong, both normal spending by the government as well as capital investments. In the third quarter both of these have been positive. The biggest uncertainty remains Covid-19. Thailand, fortunately, is doing better than many countries, including neighbours.

Interviewer: And are there still some sectors set to recover?. I mean, how about the region’s all important tourism sector, for example.

Orsen: I'll start with the sector overall. And then touch on tourism. The private sector has recovered from the second quarter, understandably. The third quarter is still down year on year, the fourth quarter as well. And not back to the baseline of 2019. So it's still quarter on quarter momentum, but it could still take a few quarters to come back to levels of last year. International tourism is a large variable. We're expecting foreign tourists of just under 7 million this year. But take into account that 6 million is before the lockdown earlier this year. So just really not much tourist arrivals this year. The figure next year, the estimate is about 5 million international tourist arrivals, the latest estimate, and this is assuming a vaccine would be available in the third quarter of next year. So that's the one large variable for 2020. In the meantime, where we have seen, areas of improvement - government has been subsidising spending for consumers that ranges from cash handouts, to co-payment schemes, and even domestic travel schemes where the government subsidises up to 40% of a hotel room and dining. So this encourages domestic tourism. Besides these subsidies, if you're looking forward to global trade, exports look promising with the result of the US elections with Mr. Biden winning but this will take time to be reflected for global recovery in trade.

Interviewer: Okay, and I mean, there has been some political upsets recently with some kind of high profile protests against the king. Are these sort of isolated incidents, or can you see them having any economic impact?

Orsen: The short answer is immediately it's limited to economic recoveries and momentum continues. But more in the protesters the protest, rather, it's more across many issues, these including the monarchy - touching upon the monarchy as well. Most protesters are students, first time voters. And these protests have actually commenced before Covid-19 – it actually started earlier this year. A couple factors include angst, disenfranchisement, a popular party that they like was disbanded, not liking the government, the way the Constitution is written, the way the Senate is selected, and just having a Prime Minister since 2014. Quite a long time, along with the economic slowdown and the inequality that ensues. But on the fortunate side, the protests have been non-violent. It's been stretched out for several months already. I think the peaceful protests will continue. And it's the issue on how the institutions will be performed going forward. It will be stretched out because there has been quite a lot of reforms in those social, economic and political fronts.

Interviewer: And while this has been going on, what's been happening in the Thai stock market? Has there been any kind of notable winners and losers, what's been the overall performance?

Orsen: The market is still down year to date, like many other stock markets. There’s been different winners and losers over the course of 2020. If you start with the initial plunge with Covid, most stocks sell as well as energy. There was a recovery in May, June, July. The market was sideways August, September, October, a huge drop - a weakness - in October followed by the November rally of risk on attitude with prospects of a vaccine. So earlier in the year, low oil prices helped manufacturers that import including logistics companies and distributors, the lifting of lockdown helped retailers and the latest prospects of a vaccine, travelling tourism and competitors, for example, airports, hotels, hospitals, shopping malls. On the whole, the larger companies in each sector benefited more than overall, particularly those that are listed on the stock market.

Interviewer: And how do relative valuations look today, both regionally and compared to kind of international peers?

Orsen: If you look at the market earnings growth at the depth of the crisis, earnings estimates are down 18 to 20%. That's earnings for this year. This has improved to 11, 12% just by way of a better than expected recoveries since the second quarter, to rebound to 2019 level would take a bit longer. EPS is still down this year. So we're looking towards the end of 2021. Where earnings should pull back to the levels of 2019. And we're seeing 2022 growth of about 10%. If you look at PE ratings, the market is trading on 17 times 2021 and 16 times 2022. It is slightly elevated, I think historically, a level of 14 to 15 times would be more attractive. It's just the fact that there isn't much earning support at the moment. And expectations are running slightly ahead. Just given the developments of Covid-19.

Interviewer: Okay, and looking at the New Thai portfolio now, have you made any recent changes? Are there any sort of notable themes running through the Trust today?

Orsen: Yes, for the past three to six months, we have increased weight in several sectors. The first is services. We are underweight the sector but we have decreased this underweight so this would include services such as transport, for example, Airports of Thailand, and also increasing more weights in retailers, those that are benefiting from the recovery in spending. We have also increased weights in tech – technology, not only electronics companies, the assemblers, the exporters, but also the mobile telephony companies, the operators in Thailand. We are slightly underweight technology now and the underweight has decreased over the quarters. We have decreased weights in property and construction. For the most part, this is property developers, we don't hold property developers anymore, focusing more on asset owners with recurring rental income. We have also trimmed materials company particularly after the run up in the second quarter for example, cement companies. We have also decreased weights in financials, particularly insurance, several banks especially the large banks and some non bank financials. Within energy and resources, we also refreshed the sectors adding new utilities names. It's a mix of power utilities and water with some exposure to infrastructure investment. So these are the main changes: increased weights in services and technology, decreased weights in property, construction and some financials and just refreshing of names within energy and resources.

Interviewer: And what sort of feedback are you getting from companies that you're speaking to at the moment? Are they generally kind of optimistic or pessimistic looking into 2021?

Orsen: The drop in third quarter sales is less than initially expected. It's still down year on year, the third quarter, but the trajectory is better than expected. Again, a reflection of macro, you can see this in same store sales growth of retailers which is less negative year on year, asset quality from banks, meaning low, lower than expected, NPL formation, recovery in consumer durable sales like automobiles. Measurement is cautiously optimistic - the largest corporates with the best financial resources are improving their market shares. Again the concern overall is just that non listed, smaller companies are benefiting less or being less optimistic, suffering more from the implications of the overall economy.

Interviewer: And now the Trust currently has a yield of over 5% - how have dividends from Thai companies held up?

Orsen: Typically companies pay as a percentage of profits. And most would have a declared minimum payout ratio. This hasn't changed. At the margin, you've seen interim dividends for this year to be down slightly just by way of lower profits. Some companies do keep an absolute level stable. So even if profits are down, some companies do increase their payout ratios just to maintain the absolute level of dividends. What we're seeing this year is average dividend yields of the companies that we invest to be around 4%. I think that will be maintained if not improved upon. The upside for dividends from the Trust would be capital gains, or any gains, especially the market run up and the Trust also has reserves upon which dividends can be drawn.

Interviewer: Okay, what is the Trust’s current position on gearing, do you still have debt in the Trust?

Orsen: Gearing levels have ranged from 10 to 15%. It is currently towards the mid to high end of that range. The absolute debt level for the Trust is unchanged since the fourth quarter of 2019, it’s just as the percentage change with market movements. So if the market fell, for example, towards the end of March and the end of October, the gearing would increase just by way of the NAV of the Trust coming down. But nevertheless, we do intend to keep gearing within this range and with the absolute debt unchanged for the Trust.

Interviewer: And finally, there are more promising signs as we move into 2021. You know, the vaccine, better treatments, this kind of thing. I wonder if you could just give us a flavour of your thinking on the outlook?

Orsen: GDP will continue to be down year and year for the next one to two quarters just by comparison. It's better on a quarter and quarter basis. But if you look at the nine months, I mentioned third quarter earlier, of minus 6.49 – nine months is minus 6.7. So not bad and for a four year expectation of minus 6.28 so still a couple more quarters of weak year on year numbers and positive quarter on quarter numbers. The runway for 2021 would be a 3.5 to 4.5% growth, GDP growth. The momentum not only for stocks and for earnings will come from the improving macro and additional upside, just from tourism and travel, which I think is not yet totally factored into expectations.

Interviewer: Great, okay. Thank you Orsen for those insights today. And thank you to our listeners for tuning in. You can find out more about the trust at www.newthai-trust.co.uk. And please do look out for future updates.

This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for information purposes only and should not be considered as an offer investment recommendation or solicitation to deal in any of the investments of products mentioned herein does not constitute investment research. The views in this podcast are those of the contributors at the time of publication and do not necessarily reflect those of Aberdeen standard investments. The value of investments and the income from them can go down as well as up and investors may get back less than the amount invested. Past performance is not a guide to future returns, return projections or estimates and provide no guarantee of future results.

Podcasts from Aberdeen Standard Investment Trusts - invest in good company

Interviewer: Hello, and welcome to the latest in the Aberdeen Standard Investment Trusts Podcast series. Today we're talking to James Thom, co-manager on the Aberdeen New India Investment Trust about how India is emerging from the pandemic. Welcome, James. I wonder if we could start with an update on India's economy - are there signs of a recovery?

James: Yes, there are signs now, which is quite encouraging because India has been amongst the hardest hit of the Asian countries. And we saw when the virus first hit, a pretty draconian lockdown, which had a very severe impact on the Indian economy. We saw a contraction in GDP growth of more than 20% in the quarter ending June. So it was pretty grim for some time there. But lockdowns have now been eased and removed. Economic activity is coming back. And I think there had been some speculation around whether this was just kind of pent up demand through the kind of lockdown period, and whether it could be sustained. But we're now into several months of sustained strong growth across industries, in fact. So it looks, it looks pretty encouraging at this point with a meaningful rebound.

James: And during this period, the Indian government's been quite keen to keep spending under control and retain its credit rating. Has that held back the recovery at all?

Interviewer: To some extent, I think that that is the case, though India, arguably to their credit has been quite disciplined in trying to stick to the budget deficit targets, which are in kind of a negative territory. And that has constrained their fiscal response certainly relative to many other countries in the region. But I think the bigger impact really on the economy was the lockdown that I just referred to. And clearly, that's now been lifted and the economy is coming back quite nicely. And although India has been somewhat constrained in a fiscal standpoint, there's been quite a bit of support from a monetary standpoint with a succession of rate cuts that have been put in place. And we have seen further fiscal support come through in recent months, and a raft of other kind of support measures to support the financial system in particular, things like loan moratoriums, and general kind of liquidity being pumped in. So overall, I think yes, it's not been quite the size and scale of response to be seen from other governments, but it's been sufficient.

Interviewer: And what's happened to stock markets during this period? I mean, have you seen the same sort of dramatic fall and then recovery that you've seen in other major stock markets?

James: Yes, we have. It really has been dramatic and the markets been surprisingly strong, it is now back into positive territory year to date, it's up about 7 or 8% and hitting fresh highs again, and that marks that kind of really quite staggering kind of trough to peak return of you know, almost 70% I think from the lows in late March in local currency terms. Having said that, I think India has still lagged the broader Asia region. So if you look at regional Asia Pacific ex Japan index, it has performed even better with some of the North Asian markets like China and Taiwan, Korea, outperforming India. And really that has just been, I think, a reflection of two things, one, just having got a firmer grip on the virus pandemic earlier and therefore, they've been able to emerge from that sooner than India. And we've seen very strong performance in the sort of technology and internet sector in these markets. And that's just not really a part of the market in India at this point.

Interviewer: And have you seen that same polarisation in Indian stock markets where the winners have won very big and the losers have really been sold off very heavily. So while there's been a kind of recovery in aggregate it's actually quite bifurcated as is typical in many of the other markets?

James: Yes. So I think there has been a big kind of dispersion of returns across sectors. It is a bit different to other markets, as I say, I think, you know, in northern Asia, China in particular, or even you know, if you look further afield to the US, it's been the tech companies, the internet stocks, like, you know, Tencent and Amazon, Tencent and Alibaba in China or Amazon, Facebook, Google in the US, those have really been sort of beneficiaries almost in the pandemic and other kind of tech semiconductor type companies. India doesn't really have those types of companies. So it hasn't had that same sort of very strong returns coming from the tech sector, although it does have a very strong and large IT services sector. And that has been a standout performer with these companies also I think being beneficiaries of as the pandemic as their clients push for more digital services and a move to the Cloud. And otherwise, it's been somewhat similar. We've seen the healthcare sector perform very well as you would expect, and seen elsewhere in the world. Consumer staples, have generally done their job and being quite defensive. And then at the other end of the spectrum, the harder hit sectors have been things like financials, banks, real estate, consumer discretionary. And that's been a very similar picture in India, although now with the news on the vaccine and the normalisation in the economy, we're seeing those sectors now bouncing back quite nicely.

Interviewer: Against that backdrop, what does the portfolio look like today, are there kind of themes you can pick up on that are kind of running through it?

James: Well, it remains a high conviction focused portfolio of high quality stocks that continue to select from the bottom up based on our own first-hand research. And we really continue to look to the long term compounders of companies with strong market positions and clear, sustainable competitive advantage, I think we've had put a big focus or emphasis on balance sheet strengths through this period. It's always a sort of core part of our stock selection criteria. But I think all the more important through a period of economic turmoil like we've just been through. So the balance sheets in the companies that we hold in the portfolio are rock solid and cash flows have taken a knock but are generally pretty robust. And I think we've kind of weeded out intentionally anything where we had question marks or doubts, from a sort of quality perspective. Having said that, it remains a well diversified portfolio. We have big positions, still in the IT services sector, which as I’ve said have been a beneficiary of the pandemic this year. And we've complemented that with a couple of newer holdings. And although as I said, the internet sector is not a big sector in the Indian stock market, at least not yet, there are a few listed companies there and we've added a couple that we like and that I think are high quality players on that scene, so those have gone in. We have a big position spread in the financial sector, favouring the leading private sector banks, and those have held up much better than their public sector rivals and they continue to take share and we've more recently complimented those holdings with a couple of stocks in the life insurance sector, which remains a sort of structural long term growth story. And then I think the consumer sector and material sectors which encompasses both cement companies and paint companies play on affordable housing and urbanisation, you know, those are large positions, too. So overall, I think the portfolio remains a concentrated, active portfolio, but well aligned to some strong multi-year structural growth trends and themes.

Interviewer: Okay, are there any favoured holdings that you could highlight just as a sort of example of your process in action?

James: Yes, I mean, maybe if I just focus on HDFC - Housing Development Finance Corp given that’s the largest holding in the portfolio currently at around 10% of the fund. You know, to my mind, that is the kind of perfect example of a long term compounder high quality stock that we've held for a very long time and has served us very well. It's a financial conglomerate and its core business is in low cost mortgages. But it also has a stake in a bank, a life insurance company and an asset management business which are kind of market leading businesses in their own right. And really what they've done over the decades is work out how to lend in a sort of risk adjusted way to the middle to low income segments in India, and have developed the right systems and processes. And on the back of that, they have a very capable and experienced management team who have been able to deliver very consistent growth, but also returns and asset quality over the years, and that, over time being reflected in very strong share price performance. And I think, you know, although, you know, this is a business you've held for a long time, I think that the growth potential for this business remains very compelling, as I say, as India continues to see further urbanisation and demand for housing and therefore mortgages and other financial services products. So hence why it remains our core position.

Interviewer: Okay, I wonder if we could skip about a bit here and look at Modi. Now, he's been in power now for six years and he's put in place a reform programme. I wonder what you think of that, and how it's sort of developing the Indian economy, whether it's been a success? Is it ongoing? And you know, the prospects in future?

James: Well, I think Modi remains an extremely popular leader in India, despite the struggles with the virus and pandemic, that we’ve talked about already. And despite some reform efforts that have not, frankly not been all that successful, he seems to sort of, say the Big Bang type reform. And sometimes those are quite effective. And they've been, I think, positive for Indians, and for the economy. But not always. I think the example that stands out where it was a bit of a miss, was demonetisation efforts of reform, which really wasn't effective and caused a huge amount of disruption in the economy. Having said that, I think some of his reform efforts have been, have been very encouraging and welcome. So he's implemented and used for the bankruptcy court code. And I think that's fundamental for the efficient working of the Indian corporate environment and to banks being able to work through and restructure loans to this banking system that remains kind of heavily burdened by bad debts. I think that's a big positive. And GST the goods and services tax, I think, is another fantastic achievements - one that taken, you know - had been the focus of successive governments over the decades, but finally, Modi managed to push it through, and there is your question more to come. And we are seeing and have seen in recent months and weeks, two big new reforms in the area of labour and agriculture - it remains to be seen how effectively those get implemented. And that, as with many things in India, is key. But certainly from a headline perspective, these look like very encouraging reforms too and there's a big focus on attracting foreign direct investment into targeted sectors as well. So I think there's more to come. And, you know, whilst there have been hits and misses, on balance, I think the hits outweigh the misses.

Interviewer: And so it could it could be a catalyst for stronger economic performance going forward as well?

James: Yes, potentially, as I say, execution is key. So if you take new policy around attracting foreign direct investment, as an example for his making India campaign that was launched was kind of much fanfare a few years back in his first term, but didn't really deliver in terms of, you know, new investment and flows into India. It's been revamped and rethought through and relaunched and is now far more targeted and supported with key kind of incentive schemes, and there is you know, some evidence of early success as India is attracting a huge amount actually of investment into the smartphone manufacturing supply chain with a large number, for example of Apple's suppliers, moving to India and setting up plants to manufacture parts. And the idea is that they will now roll this out into other sectors as well. So, if successful and I say, execution is key, then yes, I think it could provide a meaningful boost to the economic prospects of the country.

Interviewer: And how does valuations look today? I mean, India has historically traded at something of a premium to other kind of Asian markets. Is that still true? Or have you found that the pandemic has actually adjusted that a little?

James: It's still true. India's never been cheap. And even with the pandemic, and although India has lagged the broader Asia region as I said, it continues to trade at a premium. And that reflects the sort of longer term growth potential of a market which is structurally, you know, set to grow, given the size of the population and economy at a kind of relatively nascent stage of its development. So I think India will always trade at a premium. Valuations this year are a little hard to decipher, not just in India, but you know, right across markets, and given the kind of disruption to earnings, so I think we've tended to look at earnings on a sort of two year four basis or earnings multiples on a two year four basis, or on a sort of price to book ratio instead, which has been less disrupted than earnings. And there, I think you see, yes, India is still trading at a premium, but it's not looking too out of whack with historical levels. And inevitably, you have to really drill into the detail. And there are some very expensive stocks in India. But I think there is still some pockets of value as well. And I would point to a stock like HDFC. Where I think the valuation there is an example, in a financial sector which has been beaten down over the course of the year, I think they're, you know, there is still value there.

Interviewer: Great. And I wonder if we could just finish off by talking a little bit about the outlook for 2021?

James: Well, I'm more optimistic now, in my outlook than I have been for quite some time. India has been through a pretty rough two or three years, in fact, so if we rewind to 2019, it was kind of in the midst of something of a financial crisis, really, with bad debt in the financial system. And this was kind of weighing on lending and the availability of credit and therefore growth more broadly. And it felt like it was just about emerging from that. And then, of course, the pandemic hit, and that and the lockdown and the very severe impact that had on the economy. And now finally it feels like the country’s emerging from that. And whilst there's been a lot of caution and concern, understandably, when talking to companies now, there is a very clear sense that the tone is changing. Management teams are finally becoming a bit more optimistic. And as I say, there was speculation that a lot of the kind of demand that we were seeing post lockdown was just pent up demand. But that seems now to be sustained. And whilst there's a risk, of course, that we'll see a second wave of the virus in India and we certainly shouldn't kind of rule that out. Barring that, I feel quite encouraged that growth is coming back and can be sustained and that will make for quite an encouraging 2021.

Interviewer: Great, okay, thank you James for those insights today and thank you to our listeners for tuning in. You can find out more about the trust at www.aberdeen-newindia.co.uk and please do look out for future updates.

This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for information purposes only and should not be considered as an offer investment recommendation or solicitation to deal in any of the investments of products mentioned herein does not constitute investment research. The views in this podcast are those of the contributors at the time of publication and do not necessarily reflect those of Aberdeen standard investments. The value of investments and the income from them can go down as well as up and investors may get back less than the amount invested. Past performance is not a guide to future returns, return projections or estimates and provide no guarantee of future results.

Podcasts from Aberdeen Standard Investment Trusts - invest in good company.

Interviewer: Hello. Welcome to the latest in the Aberdeen Standard Investment Trusts podcast series that we have for our panel today, our economist Luke Bartholomew will be giving his thoughts on the extraordinary 12 months we've just witnessed, while fund managers, Ben Ritchie, Bruce Stout and James Thom will be doing some crystal ball gazing on what we can expect in 2021. Welcome everybody. And now, Luke, turning to you first, nobody needs reminding that it's been a very unusual year. And I wonder if you can talk us through some of the highlights and low lights?

Luke: Sure. I think you're right, that it's been what to say at the very least unusual year. It's one of those years where all the cliches that we use often in this industry, extraordinary historical unprecedented for one. Absolutely true and on the nose. And in that context, I don't think it is too difficult to think of some lowlights; the absolutely astonishing collapse in economic activity that we saw in the first half of the year 25% or so contraction. In the UK, for example, one has to go back hundreds of years of economic history to find something comparable. And of course, you know, that economic costs really significantly understates the true welfare costs ,not just the public health consequences, and the tragic loss of life, but also the shutting down of opportunities for so many people. The fact that people weren't able to go out and live their normal lives, the huge increase in unemployment that we saw in the US less so in the UK, and the rest of Europe as different policies were put in place. But yeah, I think the economic costs were just absolutely astronomical. And really, as I say, I mean, truly are cliche inducing. So I mean, I think there are some positives, and if not positive, then at least things to give one some hope. First of all, how well policymakers came together in late March, early April, when it looked like not only were we facing a public health crisis, but also perhaps the financial market crisis, monetary and fiscal policymakers were able to largely avert that. And on the whole they have put in place policies that have supported cash flow and income through this extraordinary business. Now, no doubt there will be some long term consequences from that, but they have certainly diminished some of the short term costs that we might have faced. And then the most obvious highlight, I suppose, is the good news that we've had on the vaccine evidence, that if enough capital and human engineering, it is deployed in one direction, and we are capable of quite extraordinary things. And it looks like as we speak today, that there is light at the end of the tunnel as it comes to the vaccine. And I think perhaps that does speak positively, for our ability to solve user problems as well.

Interviewer: And with potential normality ahead, do you still think that the pandemic will permanently change some aspects of the global economy?

Luke: Yes, I are expecting the economy to end up being permanently smaller than it otherwise would have been. So there is some permanent loss of economic activity. And I don't think that's too difficult to understand in terms of the psychological scarring, which leads to reduced savings, reduced investment in various bits of sort of stranded capital that have come out from this crisis that are no longer quite as economically viable as though as they once were, the fact that a whole bunch of investment streams are probably not going to go ahead over the last year in a way that they otherwise would have done weighing on future growth. The scarring to the labor market that we might see from the periods of unemployment and inactivity. But beyond that, I think it's also possible to see other structural changes as well. It's hard to believe that we would have gone through this, and it won't have changes in some fundamental ways. The most obvious, I guess, is working from home, I suspect we'll be doing a fair bit more of that in the future. Perhaps our travel patterns will change, perhaps where we live and why we live in those places. Those will also change as well, particularly if we do end up working from home much more. And I guess the great imponderable from all of this is to what extent the capacity that we’ve shown to make great sacrifices when necessary , to have extraordinary innovation for the state to mobilise resources, whether that speaks to our capacity to deal with problems, like climate change, and what it might mean about how we go about tackling that in the future.

Interviewer: Yeah, and what about a final verdict on the health of the global economy today? Are you reasonably optimistic looking into 2021?

Luke: So I think right now, the way we frame it is, second wave versus the vaccine for the short term outlook is once again, looking pretty dark. I think the UK and Europe are only now only going to avoid a technical recession of two quarters of negative growth, it looks like key for this year is going to be a quite large contraction. And then next year, we're only expecting a very modest growth. But after that, I think for the second half of next year, we could find ourselves growing quite robustly. One of the things that we learned this summer is that when lockdown restrictions are lifted, in the short term, you get a pretty large boost from growth. And as lockdown measures get wound down in the second half of next year, the vaccine allows us to return to some kind of quote, unquote, normality, that is a period where we could see quite rapid growth and potentially a return to something like the old normal, but I suppose one final cautionary thought to end on is let's remember what that normal is that we're going back to it was already a world of pretty disappointing, sluggish growth, a world of quite low inflation with central bankers and other policymakers struggling to get the targets consistent inflation, and a world of very, very low interest rates. And to the extent to which we are going back to, quote unquote, normal. I think that is the normal we are going back to.

Interviewer: Okay, that's great. Thank you, Luke. If we could turn to you now, Bruce, and ask the same question. How optimistic Are you looking out over the next 12 months?

Bruce: Well it's always difficult to predict, isn't it? and optimism is not something I think that familiar to the average Scottish psyche. So I'll try and be realistic rather than optimistic with what we've got in front of us. And, I mean, undoubtedly, this has been an extraordinary period. I can't remember one in living memory, who has life and livelihoods and health and wealth, were all threatened at the same time. I suspects as we've heard before, that, for many nations and individuals, life will be a bit awkward, and we have changed, I guess. And for investors, that means an unfamiliar landscape, I suppose relative to the past, which may ultimately unfold. However, I think, as always, it be very presumptuous to extrapolate the events and investment teams of this year, because it was so unusual, as some sort of new normal because for many the new normal, is less about choice, just simply a reality. So I think as the world returns to something like it was before, then, I suppose we are quite optimistic, because we've seen such a gulf between a narrow number of stocks and themes that have performed this year, and particularly in e-commerce and technology. But on the other side of that, people totally ignoring things like oil and gas and commodities, and transport, tourism, etc. As if we're never going to need those again, really all sorts of cyclical assets and you can add to that Emerging markets and Asia as well. So there's a huge still a huge valuation gap between a small number of businesses that have done well and a large number of good quality companies that have lagged, and that valuation gap looks quite interesting for next year.

Interviewer: And so while the pandemic has reshaped the prospect for individual industries, you think that might have been overdone, a bit, that actually it is not it's not going to be as profound a change as markets have, have presumed?

Bruce: Yes I mean, we've gone and been very, very active this year. And looking at all the businesses that we own. When I see all the businesses, it's a concentrated portfolio, Murray International is only 50 companies, but we wanted to look at them, again, with a sort of fresh pair of eyes in light of what's been happening to see if things have really changed, because, I mean, there's a lot of talk about spare capacity out there. But a lot of the spare capacity may be obsolete capacity. Now, we don't know in which case, and some companies that do have good production services may be in a very advantageous position to raise prices and rebuild the balance sheets to ensure for, for some businesses like long haul travel, and the impact that it has on jet engines, or high street retailing, maybe the whole cash versus cashless society has changed. But for a lot of other businesses, they will go back to some semblance of normality, because they add essential services and commodities for people in their lives. So it's towards those types of growth companies that we're looking at the moment because I think that's where the best opportunities are, particularly we see in Asia and emerging markets, because if there's one thing that that looks as if it's going to evolve from this, there's going to be a legacy of huge public sector debt, particularly in the developed world. And that has to be paid off over a long period of time, which will have implications for taxation on both the individual level and the corporate level, and just a general constraint on growth. Whereas, particularly in Asia, in the developing world, we don't have the same fiscal imbalances, there's much more flexibility to still have fiscal policy. And there will be such a legacy as far as we can see. So that is a change, but it's a positive change for those areas.

Interviewer: And you mentioned a couple there, but I wonder if you could just talk a bit about the key themes running through the portfolio as we move next year?

Bruce: There are one or two key themes. I think the issue that that we've had this year is a real concentration of markets, particularly in technology and e-commerce. And, as markets have got narrower and narrower, there has been less focus on diversification and that that is one of the themes of Murray International we have over 25 different countries and about 60 different businesses. So it is a very diversified International Trust, that gives us a broad exposure for capital growth and for income growth. But also, the other main theme is that we are mainly focused on Asia and the Emerging Markets world with over 50% of the portfolio in Asia and the Emerging Markets world because that's where we feel going forward the best relative growth opportunities are. So the next five to 10 years at least, plus also remember that there will be a big legacy from the pandemic this year in terms of huge public sector debt that's been racked up in the developed world. And it has to be paid for, I guess, in higher taxes, both for individuals and for corporations at some point. So there is a drag for growth prospects in the developed world that just isn't there in Asia and emerging markets to the same extent. So that tailwind should be beneficial as well, as we go forward.

Interviewer: Great. Okay. Thank you, Bruce. And, James, coming to you, though, as Bruce mentioned, that Asia appear to have emerged stronger from the pandemic. I wonder if you could give your verdict on Asia's response and the economic recovery, you've seen since?

James: Yes, I'd largely agree with Bruce, although it does feel a little premature, perhaps delivering a verdict at this stage, because it's still, you know, we're still very much in the midst of the pandemic, and, and working our way through it. But having said that, I think, absolutely, Asia has done in general a commendable job, I think in the way in which they responded to the pandemic and managed their way through it. So much so now that we have several countries out here that will post positive GDP growth this year. So despite the very large hit to GDP in the first quarter, and first half of the year, given the their ability to contain the virus, we're now seeing economic activity recover quite quickly. And in particular, in China, the big economy here, but also Taiwan, Vietnam, I think are all due to deliver positive growth this year, which is quite a stark contrast to much of the rest of the world, and I think is a testament to the really very rapid and focused response that these countries had to containing the pandemic, locking down the borders, implementing an effective track and trace capability and obviously supporting economies with the stimulus when needed. So I think, overall, it is looking certainly relative to the rest of the world, pretty encouraging. Here, obviously, there remains the risk of second or even third wave. And we are continuing to see that and it's by no means a panacea. There are several countries here that are still battling through that that's the first wave, India stands out in particular, as a country that has seen very significant numbers of cases. But even there, fortunately, we're now seeing case numbers peak, and hopefully, it will continue to trend down those play that kind of second wave risk does remain.

Interviewer: Okay, and how are you positioning the Aberdeen New Dawn Investment Trust for the year ahead?

James: Well, the focus as ever remains on quality companies. So whilst growth is recovering, it is still pretty turbulent and an uncertain environment out there. So it feels prudent still to be invested in market leading companies with strong balance sheets and experienced management teams. So that's very much the focus overall. Having said that, we continue to think about the structural kind of growth themes and stories out here. And despite all the doom and gloom, I think there remain many of these kind of structural growth trends here in in Asia as Bruce was alluding to. So you have continued rising wealth levels and urbanisation and all of that is thriving demands, basic products and services, as it has for decades already. And I think that will continue but there are a lot of other kind of newer, faster moving trends, where Asia is playing a kind of key role. So the tech sector is one and we've got in Aberdeen New Dawn a substantial waiting. They're both in the kind of hardware side of the sector. So semiconductors, for example, where we're seeing multiple new drivers emerging for demand there, whether it's continued demand for high powered computing, data centres, cloud services, 5G, artificial intelligence, I mean, it really is a whole range of new drivers there. So I think that remains an attractive long term story. We're continuing to see substantial innovation in the internet sector. And with many of the Asian companies leading the way there, I think there's plenty going on there and COVID, as it has for much of the rest of the world has been a catalyst for that sector. We continue to see that transition from offline to online. But then I think also, you know, in the green economy, there's plenty going on here in Asia, whether it's the shift to electric vehicles, or to renewable energy. And many of the countries here are coming up with quite ambitious targets. So I think that's providing interesting investment opportunities for a slightly longer term investment horizon.

Interviewer: And what extent would you say that the pandemic has fundamentally reshaped the outlook for Asian companies? Or do you believe like Bruce that this has gone too far, at times that people have been assuming a new normal? And perhaps it's not going to be that different after all?

James: Yes, it's so difficult really to have a clear view, at this point in time, in my personal opinion on working from home, my feeling is that we shouldn't yet be writing the obituary of office space and commercial real estate just yet. And I suspect tourism and travel will eventually rebound, though, admittedly, it may not get back to pre-COVID levels. But I think, that aside, certainly there are changes happening, as a consequence of this we have talked about the internet companies already and that has been a catalyst to moving consumption online. I think that that's very real and is permanent. We've got a number of IT services companies in that part of the world, and they're seeing their corporate clients, increasing their efforts to digitise processes and shift things to the cloud. And companies themselves, I think, are increasingly doing this, you know, we see it across the region, in an effort to, I guess, they've been forced to go to digital ways of working, but have found in many cases, that's a relatively effective way of working and cost efficient, were working. So it's been quite big cost reductions happening as a consequence of this. So I think there are, you know, a number of changes that, arguably could be positive for Asian companies. And we'll have to see how permanent those proved to be. But I think many of them will be structural.

Interviewer: Great. Okay. Thank you, James. Ben, let's turn to you now The Dunedin Income Growth Investment Trust invests across both the UK and Europe, perhaps Europe, can you see a better year ahead the stock markets in the region? And if so, you know, any particular hotspots, either regionally or sectorally?

Ben: Given everything that's happened in 2020, looking at the pan European index it is actually not too bad to be down mid single digit percentage. I think, given everything that's happened is a reasonable results. The UK has been a little bit weaker than that, overall. But I think given the ginormous economic impact that we saw earlier in the year from COVID, I think to have ended up with that outcome is reasonably okay. I think looking into next year, as Luke was sort of painting the picture, really, there's a combination of sort of near term economic weakness, which is likely to feed into some pressure on companies. But then you've got a combination of expected rebound, as we move into the second half of the year, perhaps into the second quarter. And then you've got the the rollout of of the vaccines, which I guess should support further growth. And I think that's the sort of environment where we would probably expect that investors will look through the near term weakness and look out to perhaps the more optimistic picture for economic growth, and certainly when you look at what consensus is expecting from an earnings perspective, then, you are probably looking for somewhere between 35 and 45% earnings growth next year, you know, that's probably likely to be supportive for the outlook for equities as well. Although, when you think about this year, we saw that 38% decline in Europe, and a bit more in the UK. And markets have not taken that too terribly overall. So we'll have to see that imbalance. But I think certainly, next year, looks like it might be a little bit better. But I think following on from what Bruce was saying, it's always hard to say how these things will develop really at the market level.

Interviewer: And I mean, the region has had valuations on it’s side. Is that still the case, are the valuations still pretty competitive compared with its global peers?

Ben: Yeah, I mean, I think they are. But I would always caution against reading too much into that. I mean, I think, you know, Europe as a market has been cheap for most of the last 20 years. So I'm not sure that's the new thing. And it's also generally been a bit of a disappointing place for investors at a global level, you know, the UK has been on a fairly significant discount to most other markets since Brexit, and again, that hasn't necessarily helped its performance. So I think it'll really comes back down to what we think companies can deliver, in terms of earnings and cash growth. And also the starting prices which we're paying for those businesses, so we still see plenty of opportunities at the company level across Europe and the UK. But we wouldn't be making a big play of the fact that the overall markets and necessarily cheaper than other ones in the world, because I also think when you actually look at details, there is some reasonable reasons why the UK might be cheaper, they have nothing to do with Brexit, but have a lot to do with big chunks of the index being in sectors, which traditionally always have relatively low valuation like banks or oil companies or mining, when you look at them on a PE basis. So you know, I think, optimistic at the company level, but we would be cautious a little bit on using valuation as the primary reason to be enthusiastic about those markets.

Interviewer: Okay, and how are you positioning the Dunedin Income Growth Trust for the year ahead?

Ben: So see, one of the things we've really focused on over the last couple of years is not putting all of our eggs in one particular outcome basket. So to go back to 2019, one of the things that we did there, as we approached the deadlines around Brexit deals, was not really having any great insight into how that would play out was just to make sure that we were quite balanced in terms of our positioning, to make sure that we had good domestic UK exposure, which is prosper in the case of a deal, but also have some good overseas companies, which continue to generate good returns, if we were to see a reasonable outcome. And I think we've tried to take that kind of approach where if we don't know, then why take in a big bets, either way. And I think that's much the same, really, as we look out into 2021. And we look at that, for the last few weeks, we've had the US presidential elections, we've had the development of vaccines, through both of those quite big events we managed to keep relative pace with what's been going on in the market, despite having proven to be pretty resilient for most of this year. So we see that as a sort of some degree of a good outturn in terms of positioning. And I think if we look into the year ahead, we want to be both resilient in tough market conditions, if we do see sentiment turned down for whatever reason, or the economy, not deliver what people expect. But equally, you know, we want to be able to participate in any available growth opportunities that might be there. So, you know, perhaps the segment where we might lag the most would be if we really do see the very, very distressed companies in the market perform incredibly strongly in 2021, that probably won't be particularly helpful for us. But otherwise, I think we feel pretty good about our outlook. And we put an interesting portfolio with a range of different companies operating in different economies, different geographies, different economic drivers. And I think that overall leaves us feeling quite confident that we're well positioned with a good bunch of companies, you know, almost regardless of what comes out of some sort of macro-economic or strategic political perspective.

Interviewer: Great. Okay. Thank you, Ben. And thank you everyone for those insights today. And thank you to our listeners for tuning in. And let's hope for a less eventful 2021. You can find out more about the full range of Aberdeen Standard Investment Trusts www.invtrusts.co.uk and please do look out for future podcasts.

This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for information purposes only and should not be considered as an offer investment recommendation or solicitation to deal in any of the investments of products mentioned herein does not constitute investment research. The views in this podcast are those of the contributors at the time of publication and do not necessarily reflect those of Aberdeen standard investments. The value of investments and the income from them can go down as well as up and investors may get back less than the amount invested. Past performance is not a guide to future returns, return projections or estimates and provide no guarantee of future results.

Podcasts from Aberdeen Standard Investment Trusts - invest in good company.

Interviewer: Hello and welcome to the latest in the Aberdeen Standard Investment Trusts podcast series. With me today is Fran Radano, Manager of The North American Income Trust. Today we'll be talking about the election and whether it's made a difference to stock markets. Welcome, Fran.

Fran: Thank you.

Interviewer: Now, the election has obviously garnered a few headlines. And after some to-ing and fro-ing, we appear to have a winner. How have markets reacted to Joe Biden's victory and how has that affected the portfolio?

Fran: So first things first, Trump technically hasn't conceded yet. But obviously, for all intents and purposes, we're assuming a Biden presidency, and we're expecting a Republican Senate, which won’t be decided until early January, and a very narrowly held democratic House. I think the effect here of what that looks like will offer probably what we think might be the best combination of sort of pragmatism at the top, and sort of the benefits of a divided government, where the full democratic platform of higher taxes and large spending programmes on certain initiatives will probably be pulled back, if not pulled back entirely. And conversely, some of the Republican platform initiatives are also off the table. So I think you see a pretty good backdrop here. And obviously, it's pandemic dependent, but we do have a vaccine now with good efficacy. So if we look through that, you know, we feel sort of cautiously optimistic.

Interviewer: And have you made any changes to the portfolio in expectation of a Biden win or any other outcome to the election?

Fran: No significant changes, you know, sort of, per usual, but obviously, we're cognisant, you know, if you look at an industry like banking where under a democratic sweep, there could have been higher taxation and more regulation, and to be sure, the regulation is still on the table, taxation, probably less so. Something like that could impact their business in an already difficult time. So we did reduce some regional bank exposure, you know, not massively but thoughtfully. You know, conversely, in a sector like healthcare, you know, we maintained our overweight position, with the belief that the underlying businesses have predictable cash flows. They have demand visibility, and we just believe the single digit multiples of our two core positions, which are Abbvie and Bristol Myers, are draconian at current levels.

Interviewer: And 2020 has obviously been an extremely challenging year, to put it mildly. I wonder if you can give a brief overview of the performance of the portfolio and also any reshaping you've done in the light of the pandemic?

Fran: Yeah, well, as you as you know, 2020 has been you know, it's been a bit of a whipsaw. You know, we saw it at the very start of the year, strong GDP reading. And literally all-time records in both consumer net worth and low unemployment. And wage growth was also strong. So we had a great backdrop coming in, probably something we hadn’t seen in quite some time. And as we know, this fairly abruptly changed as the markets pulled off in February. And the US economy, you know, came to a screeching halt, almost literally by mid-March. Currently, the backup of the second and now third wave during the truly unprecedented presidential election has made it especially difficult for dividend focused managers as dividend yielding stocks were shunned despite very few dividend cuts here in the US. When we look at it, maybe it was the perceived risk of increased taxation on dividends under a Biden sweep, or simply the focus of investors on all things technology related. As far as the portfolio changes, we've made nothing - you know, reshaping is a good word. I think we’ve reshaped some things in the margin. I think what we've done on the whole is that we were able to pick up some very high quality names, that are growers that also pay progressive dividends that had been on our watch list for quite some time, but had high valuations. And in the spring, when we saw stocks sold off indiscriminately, we were able to buy some of those.

Interviewer: Okay, and now we have a potential vaccine, although there's still a couple of stages left to go. The markets have been quite excited about that. Has that changed market leadership at all? Has it changed the sort of balance of valuation for the US market?

Fran: It seems like some days it has and some days it hasn't. I think, you know, as long term investors we do see a light at the end of the tunnel, given the vaccine, you know, test readings from two different providers. But, I think the way we look at it, as long term investors is, we still like our healthcare space, we think the risk total is largely priced in. We also own two defence companies, Lockheed Martin and L3 Harris trading at mid-teens multiples, which seem to be pricing in an outcome that we simply don't foresee. And finally, on the banking side, we own four domestic banks of different shapes and sizes, and we just believe the valuations there do not align with the cash generation or the balance sheet strength. And oddly enough, the bond market of all people would agree with us on these banks, but the equities still have lagged.

Interviewer: And the aim of the Trust is to pay above average dividend income and generate long term capital growth. As you mentioned earlier, it's been a tough year for income. Can you give an update on the portfolio income and the levels of revenue reserves?

Fran: Yeah, so the typical stock in the fund, you know, yield, say 3.5, maybe 3.75%, it grows its dividend at a high single digit clip. Year to date, dividend growth is a bit lower because some companies have just sort of kept their dividends flat. So right now we're looking at dividend growth, and they say 4 to 5% range. And of our 40 stocks in the fund, we've only had 2 dividend reductions. One was a small 14% cut, and the other was a company, Blackstone, who actually pays a variable dividend. And they just announced their final dividend of the year and actually year over year it’s essentially flat now. So you know, the other 38 companies in the fund have paid either a flat dividend or progressive dividend. So that puts us in a pretty good place on the revenue front. Revenue reserves are calculated annually. And, you know, we entered the year with roughly 10 months of revenue reserves. We believe when we close the books on this year in January, that will put the board in a very good position to once again pay a progressive dividend and actually increase reserves even further. We feel very good about our performance on this front in an otherwise, you know, very difficult year.

Interviewer: Yeah, I mean, do you think the worst is over on the dividend front? Or can you still see companies continuing cuts?

Fran: No, I think we feel pretty good about it. I think, you know, what makes the US market a little bit different is there's two ways to return cash to shareholders. There’s share repurchase and there's dividend. You know, for a typical company in the North American Income Trust, majority of that return of money to shareholders is through dividends, but often our companies buy back stock enough to keep the share count flat, or even shrink the share count, you know, 50 basis points, or percent. And what we've seen is, our companies sort of turn off the share repurchase spigot and continue to pay out dividends. So we actually feel pretty good about that. If we look sort of beyond our universe, we actually see some companies actually reinstating their dividend. So I think the visibility is there, and obviously, the vaccine and the promise there, you know, lends some credence to that. So, otherwise we feel very good about dividends and revenues and the ability to pay a progressive dividend.

Interviewer: And just finally a bit of crystal ball gazing if we can. I mean, how are you as 2021 approaches? How are you feeling about the future? Are you reasonably optimistic that companies can bounce back or even thrive after the crisis?

Fran: So it was interesting in the States here, I think, the crisis, what we saw here with many of the large well capitalised companies is that they were actually able to sort of sustain their business and sustain their business model, and many of them have grown share. Unfortunately, it was these small, private, less well capitalised companies that you see on Main Street - they've not only lost share, but they are still feeling a lot of pain. And given the political theatre, you know, in not renewing fiscal stimulus bills, it's continuing. So I think it is a little bit of a bifurcation on that front. I think the biggest learning going forward with corporates and companies in the Trust is a lot of them realise, you know, they can actually manage their business with far fewer expenses than they thought were needed. I would expect more automation, I would expect more use of technology. And the business travel component that people have talked about, I think that will be reduced on a semi-permanent basis or, you know, for quite some time. And then, importantly, I think on a personal level, life in a post vaccine world for many who have been sheltered has the potential for people to embrace life, like they have never before, you know, which will be a fascinating time. I think that that will sort of stimulate the economy and make at least the back half of 2021 a very interesting time when we look back in the history books.

Interviewer: Let’s hope so, that's great. Okay, thank you, Fran, for those insights and for your time today. And thank you also to our listeners for tuning in. You can find out more about the Trust at www.northamericanincome.co.uk. And please do look out for future episodes.

Important information:

This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for information purposes only and should not be considered as an offer, investment recommendation or solicitation to deal in any of the investments of products mentioned herein, and does not constitute investment research. The views in this podcast are those of the contributors at the time of publication and do not necessarily reflect those of Aberdeen Standard Investments. The value of investments and the income from them can go down as well as up, and investors make it back less than the amount invested. Past performance is not a guide to future returns, return projections are estimates and provide no guarantee of future results.

Podcasts from Aberdeen Standard Investment Trusts - invest in good company

Interviewer: Hello, and welcome to the latest in the Aberdeen Standard Investment Trust podcast series. With me today is Nalaka De Silva Head of Private Market solutions and manager on the Aberdeen Diversified Income and Growth trust. We're going to be talking about the recent strategic review of the trust and how the strategy will evolve going forward. Welcome Nalaka, could we start with a brief introduction to the strategy and what you're trying to achieve with it?

Nalaka: Oh, hi. Thank you very much for having me. So the Aberdeen Diversified Income and Growth, Investment Trust is really there to provide a stable income and capital appreciation through a globally diversified multi asset portfolio. And we try to do that by investing in a range of assets that are less correlated to equity markets to provide that stable income and long term growth potential.

Interviewer: The Board recently undertook a strategic review on the trust. Can you talk me through the announcement from a few weeks ago and what it sets out?

Nalaka: So as I mentioned, the strategic review is really there to do two things, one, as a portfolio that spans across public and private markets, look at how we can create a portfolio that's going to be resilient in fairly uncertain times. And as you know, we've been going through a fairly volatile time for markets, still waiting to see how the US elections pan out from a policy standpoint and whether Mr Biden takes over, the Coronavirus and vaccine and how , will this continue to evolve over time. And, as a result, a portfolio like ADIG how will it react to those types of conditions going forward? So the review itself was to do two things one, could we de-risk the portfolio in a time of volatility? And how do we position ourselves to provide that stable income and growth? That required us to do a couple of things. One is look at the long term asset allocation of the portfolio, and look at how we structure our investments going forward. And finally, how do we implement in the near term?

Interviewer: Okay, and you've recently come in as lead fund manager on trust? Can you give us some insight into your background and also on ASI’s Private Markets capability?

Nalaka: Sure, so I'm responsible for private market solutions and I work with a range of clients from insurance companies to pension funds to wealth managers in building multi asset private market portfolios. I sit on the management group of broader private markets business, which is currently about £65 billion in size, as a result of the merger between Aberdeen Asset Management & Standard Life investments our platform is one of the largest private market vehicles or businesses in Europe. We have exposure to private equity infrastructure, real estate, credit and natural resources. And there’s about 230 people on the private market sides and real estate sides, working out of 21 locations globally. It gives us a fantastic platform to be able to provide investment content and access to arrange really exciting opportunities for clients.

Interviewer: Okay, and you've mentioned about how the Strategy has evolved and that markets will form a significant part of it. Could you just discuss that in a bit more detail, you know, how you're allocating between the different areas and that sort of thing? Sure.

Nalaka: So I think it starts to talk about a bit about what we did on the asset allocation changes in terms of looking at the portfolio and how it was previously positioned. We had a lot of exposure to equities, to fixed income in emerging markets and asset backed security space and a range of opportunities in what we described as special opportunities or special ops, which included things like aviation financing, shipping, music royalties, as well as private market investments, including kind of infrastructure and private equity. And looking at the portfolio today, and where we want to take it going forward it was to try and reduce risk in the portfolio in the near term. So that's taking equity risk off the table, in terms of volatility, and perhaps looking at where the emerging market exposure was taking us longer term. So what we've done is to reduce the exposure to equities, from roughly about 17%, down to 10% of the portfolio, we've taken 31% of emerging market debt and fixed income securities down to about 25%. And we're replacing that with private equity, infrastructure, real estate and credit assets on the private market size, and where we are and leading the special opportunities roughly the same around sort of 20%. So that will give a more stable portfolio going forward because of low volatility on the public market side. And where we were trying to enhance the yield of the funds will be accessing areas within the private markets, such as private credit and infrastructure, which are very stable, and cashflow generating parts of the market, where the income streams are identifiable and resilient.

Interviewer: And how are you accessing those investments? Are you are you making direct investments or you take a portfolio approach.

Nalaka: So we're taking portfolio approach to the overall portfolio is divided up into four segments, equity, credit, alternative and private markets. And within that, we're using the depth and breadth of ASI capabilities. So we have a very strong multi asset solutions team and currently expand upon their investment program within fixed income equities and credit assets, and also the diversified alternatives group. And on the private market sides so as I mentioned before, it's a big platform, investing across private equity infrastructure, real estate, credit and natural resources. So when we look at investing, we first work out where we want to target investments which markets would segment and the process of portfolio construction that takes place. And then from an implementation standpoint, we'll work with each investment teams or deal teams to execute in any one particular marketplace. So we will take direct investments and private markets, as well as investing through funds.

Interviewer: Okay, and stable, resilient dividends have obviously been a key priorities for the trust. Can you explain a little bit about how you're going to achieve that as it while also growing the NAV?

Nalaka: Sure, so the income is really important components of the portfolio. And I think it's important to perhaps distinguish in terms of the private market holdings, where that income is going to come from, and we have touched on infrastructure before the infrastructure has been building up in the portfolio, both on the public side and on the private side for some time, and we will continue to build on the core, that's investing in essential infrastructure, that supports the regional and domestic economies, things like schools, hospitals, transportation assets, energy generation, communication assets, these type of investments that's throw off a of a yield, that's very stable, and also has some form of inflation linkage, which will be helpful over the long term, and will build around that portfolio. And so the next place that we look for yield is private credit, investing or lending to businesses, where there'd be senior loans or asset backed securities or securities that are secured on the back of physical assets, where there's a high degree of protection for investors in uncertain times. And because the yield that we get from private assets is slightly higher than we would get on public assets because of the liquidity, that can generate a higher yield in the portfolio without taking a whole lot more risk. We will also get the growth coming through longer term from investments in private equity, the development of real estate assets, we're investing in mixed use and residential property assets globally, we're invested in timber, and agriculture and farmland assets. And so the growth aspects of the portfolio will be complemented from a core satellites built on the foundation of I guess, credit and infrastructure, and then private equity, real estate and natural resources around that.

Interviewer: And presumably, investing in these types of assets, create and bring the kind of unique range of risks. Can you talk a little bit about how you're managing those risks, you know, the key you have in place to look at that?

Nalaka: We look at risks on number level? So when we talk about the public and the private aspects, we look at the liquidity risk around an asset how liquid is an asset and how quickly can we sell it at the time that we want to. For private markets, it's a bit different we look at private markets as a long term hold of assets and sometimes we take time to put money into the investment, it takes time to be drawn down. You know, if we're building an asset, the time taken to plan consents, finally constructed assets until it becomes operational or stabilised, you know, takes a few years. so what we do is we try to balance that liquidity risk across the portfolio by having a range of investments at different stages. We also look at the types of risk we're taking on in the portfolio. So if we look at infrastructure, for example, these things will be typically linked to some sort of government concession on the social infrastructure sizes, schools, hospitals, transport assets, other assets might be kind of economically focused. So we look at energy. But the types of investments that we're looking for is to find an identifiable stream of revenue, which then gets distributed back to the funds, and ultimately back out to investors. And so when we build up a profile of all of the different investment types, and we've got a range of diversified alternative income sources within ADIG, we have got the likes of shipping, but areas that are in music royalties, for example, which is rather interesting fields. We've got litigation finance, which is financing court cases, and all of these providing, a cash flow back to the fund. We've also got the more traditional types of fixed income, so investing in emerging market bonds, where these are loans to governments or corporates in developing countries around the world which pay a relatively high yield. And then we've also got some lifted securities, which are backed by physical assets, called asset backed securities. And that's invested with a range of managers from commercial mortgage backed securities all the way through to different types of instruments that pay out the yield. So as we add all of those income together, that's what will prop up our dividend reserves, which will ultimately be paid out through the progressive dividend policy by the board.

Interviewer: Great. I mean, one of the benefits of the trust is clearly that it allows investors to be invested in investments if they're unable to access themselves. And can you talk a bit about how the trust can act as a diversifying for client portfolios and, and also perhaps why that's particularly important today?

Nalaka: Absolutely, I think, typically getting into particularly private markets is difficult because, one, they're not perfectly divisible, you can't invest through shares and buy, 1% of a private company, or invest in an infrastructure projects on a global basis. So having a vehicle which allows a broader audience of investors to be able to access these types of projects, or companies or assets through fund or directly make the investment trusts a really valuable vehicle for that. So you get access to things that are just not available physically or structurally can be accessed in normal forms. And then from a diversification standpoint, the range of assets that ADIG has, is quite a unique in a way. So it covers the full span of public and private, we've got risk buckets that are designed to generate returns and different points of the cycle at different points in the market. We have equities to do that, in the near term with a bit of a tilt to smaller companies, which are generating higher growth, and a bit of the tilt to infrastructure as well. Then we've got our fixed income and credit portfolios, which is diversified across a broad basket of underlying assets, whether it be government bonds, corporate bonds, and an asset backed securities. And you've got this really interesting space of alternative risk premia, as we describe it. And what we're going to be doing there is we're going to be selling down our listed infrastructure as we take on more private infrastructure, but still take on very interesting opportunities in terms of the likes of litigation finance, the music royalties, and other income generative stream which are less correlated to the equity markets. And then this big basket of private markets that we hope to grow with the portfolio in time to, including infrastructure projects, as I mentioned, private credit and exciting investments in private companies through a diversified basket of venture capital, private equity, natural resources and real estate. And that that diversification provides stability at times when markets are volatile. So not all of those assets move in the same direction. And when the world is correlated around particular times of the market, like we saw that through COVID and in 2018 or during the trade war and tech rhetoric that was going around at that point in time, and what we expect is while we will have some volatility, we will have a much smoother ride having a high proportion into these less correlated assets.

Interviewer: Great, and then just finally, what benefits have you seen from the recent phone repurchase.

Nalaka: The bond repurchase was something that the bulls are willing looking to do to provide more flexibility at the corporate level. So by taking the bonds, which are going out to 2031, and we're actually relatively expensive in terms of interest rates at about 6.25%, when there was quite a big interest charge in the fund. So one its providing more of a buffer, or more capacity to be able to provide that stable dividend, because we're not paying that expensive rate of interest. And because if the board decides that they're going to do share buybacks, which is an important part of discount management, as an investment trust, having that leverage covenants in place made it very difficult to do that. So just provide them more flexibility in discount management control and providing the propensity for a progressive dividend.

Interviewer: Great. Okay, thank you so much for those updates. And thank you to our listeners for tuning in. More details on the trust can be found at www.aberdeendiversified.co.uk. And please do look out for future episodes.

This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for information purposes only and should not be considered as an offer, investment recommendation or solicitation to deal in any of the investments and products mentioned herein and does not constitute investment research. The views in this podcast are those of the contributors at the time of publication and do not necessarily reflect those of Aberdeen Standard Investments. The value of investments and the income from them can go down as well as up and investors may get back less than the amount invested. Past performance is not a guide to future returns. Return projections are estimates and provide no guarantee of future results.

Podcasts from Aberdeen Standard Investment Trusts: invest in good company.

Interviewer: Hello and welcome to the latest in our Aberdeen Standard Investment Trusts podcast series where we catch up with the Trust managers to explore how they're navigating these difficult conditions. With me today is Pruksa Iamthongthong from the Asia Dragon Trust to give her insight. Thank you for joining us today Pruksa. Now you're aiming to find areas of structural growth in the Asian economy, and obviously digitisation and the move to online has been very important during this pandemic, but can you explain why longer term e-commerce and online activity have such strong growth potential?

Pruksa: Well they have really been a force to be reckoned with during this pandemic. But if we were to look at how the growth has been and looking for a long term trajectory, I think online and e-commerce has clearly been very disruptive to traditional retail and simply because I think it’s the answer to various consumer needs, whether you think about the breadth of choices that the online world can offer at the click of your fingertips, the personalization of choices as well - as they gather more data about you, they can make recommendations according to your browsing habits. As well as the increased convenience in the increasingly fast paced world that we live in, it is convenient with deliveries coming to your doorstep. And ultimately, if all these things are done extremely well by an online provider, an e-commerce retailer, it does produce a very good customer experience. So I say why not - I think we are all converted during this Covid period. And therefore from a growth perspective, we do see a long runway for e-commerce and online activity or digitalisation across many verticals of the economy. And this applies to many parts of the world.

Interviewer: Okay, and what type of companies are you investing in to access this trend?

Pruksa: Well, we can access this trend from many ways, actually. Firstly, we can think about the ecosystem players that could be the providers of such online services. So for example, the likes of Tencent which is our core holding. Tencent as part of the business helps to digitalise the local small shops within the community. They provide Tencent Wechat pay - it has mini programmes that provide these shops with CRM or customer relationship management. And essentially, that allows small shops to convert their offline presence into an online and ultimately mostly an O to O model, which is an online to offline model. And that's how consumers today are actually accessing this service. And I think we actually see an acceleration of this happening during the Covid situation in China, where many of these offline retailers - businesses - have to be forced to go online to remain in business. So that could be one way. Another way, is in the enablers of digitalisation. And what I mean by this is it could be the investment into the building blocks of digitalisation. So, if you think about it, there is no secret that data is the key in digitalisation, and in others, and we go back to my earlier point about customer service. In order to provide that seamless customer service and experience, the ability to process data to store data, to facilitate interaction and exchange of data is extremely important. And all this needs to be powered by things like advanced semiconductor chips. And that is manufactured by the likes of TSMC. Taiwan Semiconductor, which we have in the portfolio and Samsung Electronics, both are core holdings in the Trust. We also invest in data centres in China, which will be the key infrastructure is supporting the rapid growth of cloud providers that are a key enabler in this area as well. And the third way could be a bit more traditional, it may be a traditional consumer goods company. One example that we can think of is a company in India. It’s an old company called Hindustan Unilever, which is the Indian subsidiary of Unilever. It is a household name that is well known for their consumer goods. But perhaps what is less known is how they have played a central role in the digitalization of e-commerce activity in India, which we know is - penetration of [modern trade] is actually very low. So a lot of trade in India happens on what you call a general trade and the small neighbourhood shops call Kirana which is - you can think of it as a little hole in the wall. It is very much a central part of that. So what this company does is they help to digitalize the Kiranas. They provide the app interface called Mykirana that allows these offline small Kiranas to go online again. And if you are a consumer in India, you open the app up, you can actually search for the Kirana that is closest to you and order online – again, it will be delivered to you at your doorstep. So something very, very handy during the Covid situation India as you can imagine.

Interviewer: Thank you so much Pruksa for your insights today, and thank you to our listeners for tuning in. For more information on the Trust, please do check our website, www.asiadragontrust.co.uk and do look out for future podcasts.

This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for information purposes only and should not be considered as an offer, investment recommendation or solicitation to deal in any of the investments and products mentioned herein and does not constitute investment research. The views in this podcast are those of the contributors at the time of publication and do not necessarily reflect those of Aberdeen Standard Investments. The value of investments and the income from them can go down as well as up and investors may get back less than the amount invested. Past performance is not a guide to future returns. Return projections are estimates and provide no guarantee of future results.

Hello, my name is Ben Morris and I'm the Senior Equity Investment Specialist at Aberdeen Standard Investments and I'm delighted to share a short update on Japan. I'd like to cover three areas. Firstly an update on the market and why Japan still remains an important asset class. Secondly, how we invest at Aberdeen Standard Investments. And thirdly, and finally, a brief outlook.

So in terms of an update on the market, we've seen Japanese equities advance in the third quarter of this year on expectations of policy continuity after Yoshihide Suga succeeded Shinzo Abe as Prime Minister. In addition to maintaining fiscal and monetary stimulus Suga pledged to speed up structural reforms, promote digitalisation in the government and society as a whole. He has also aimed to consolidate small and medium sized enterprises and regional banking sectors to help optimise their operations. Similarly, he has pledged to promote more competition among mobile phone carriers to drive down prices and sentiment has generally lifted as regional authorities including the Tokyo Metropolitan Government that downgraded their COVID-19 alert levels as a result of the receding infection rate. And in addition, there was some general optimism that the US Federal Reserve's revamped approach to handling inflation would keep interest rates low, lower for an extended period of time. So with these sort of thoughts on the market in mind, it is worth reminding ourselves of the opportunity in Japanese equities. As you know, Japan is one of the largest single country markets in the world, around 7 or 8 per cent of MSCI world. With a similar number of companies as the US, we know that coverage is poor. It's probably the most under covered developed market in the world. And this really means that there are genuine opportunities for active managers. Secondly, investing in Japan is not only about investing in Japan, there are many high quality companies that are operating across the world, that just happen to be based in Japan. A key example of this would be Makita, the power tool manufacturer or Seismic, the medical equipment manufacturer. And thirdly, ESG. Historically, governance has been poor. We have seen numerous issues in the past around the likes of poisoned pills, weak controls, inefficient capital allocation. So really this is coming from a low base and the manager is looking at these characteristics and engaging with companies certainly provides an opportunity there.

So onto the second question, why Aberdeen Standard Investments and what's our approach. Our long term quality approach really is driven by fundamental in depth bottom up research with the ESG analysis fully embedded within that and we're seeking to uncover high quality Japanese companies that we can invest into for the long term. The team, on average, meets with about 150 Japanese corporates a year. And we do certainly benefit from our large experienced investment team across Asia. And actually the wider global equity research platform that we have, that we benefit from, helps us both in terms of coverage, but also cross checking investment opportunities. And being a long term, shareholder - long term investor - certainly does help the company engagement. And as we know, that engagement aspect really is supportive to managing those potential sort of governance risks. The outcome of this approach enables the team to construct portfolios, where you know, if you think about portfolio metrics, they are typically above average on a number of areas. Firstly, profitability. Our focus on expanding on strong economic notes and premium and high profit, operating profit margins than the broader index stands the portfolios in good stead. Secondly, dividend growth, looking for rising powers of growth and those that are growing faster than the index, strength of balance sheets and having strong balance sheets, low levels of net debt to equity and in many cases net cash, hugely supportive and offers up those high quality characteristics that you might expect. And thirdly, returns - having higher return on equity than the index. So, growth from these companies that we are investing in. And from these underlying companies that we've identified and invested into, we’re able to draw out several themes from that. So things like automation, smart initiatives, structural reform opportunities and technological and pharmaceutical innovation, would be some attractive areas that we’ve seen that are finding and have found companies that we invest in. These opportunities combined with attractive valuations for Japanese equities certainly give us a reason to consider an allocation.

And then finally, on to a brief outlook. Essentially, the medium term outlook is relatively hazy. We're seeing a fresh wave of coronavirus cases throughout the world. And this could certainly stifle the start of a recovery. We have seen some promise in terms of vaccines and definitely things like the timeline and the success of these treatments are still pretty unclear. And then we add on to that the uncertainty and the tensions a break between Washington and Beijing - finalising in the context of the US presidential election in early November. Certainly there are challenges, but we do believe that the solid fundamentals of the companies that we invest in to, combined with management agility should allow the recovery of these companies to occur faster than the broader market. And we may remain absolutely committed to our bottom up investment approach. And we have an emphasis, as we've discussed, on good quality companies at attractive valuations while actively engaging with their management to ensure robust levels of corporate governance and high standards of sustainability. Our holdings retain healthy balance sheets and generate strong cash flow. And it's you know - the management experience and the knowledge that we have of our company management who've been able to successfully navigate previous crises that give us more confidence in the valuable addition they can add to the portfolios. Thank you very much for your time today. And look forward to speaking with you again soon.

This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for information purposes only and should not be considered as an offer, investment recommendation, or solicitation to deal in any of the investments or products mentioned herein and does not constitute investment research. The views in this podcast are those of the contributors at the time of publication and do not necessarily reflect those of Aberdeen Standard Investments. The value of investments and the income from them can go down as well as up, and investors may get back less than the amount invested. Past performance is not a guide to future returns. Return projections are estimates and provide no guarantee of future results.

Podcasts from Aberdeen Standard Investment Trusts, invest in good company.

Interviewer: Hello and welcome to the latest in our Aberdeen Standard Investment Trusts podcast series, where we catch up with the Trust managers to explore how they're navigating these difficult times. With me today is Adrian Lim from the Asia Dragon Trust to give his insight. Thank you for joining us, Adrian. Now let's start by looking at the philosophy and approach of the trust – the Asia Dragon approach focuses on finding quality companies, and how are you defining quality?

Adrian: Well, quality means basically identifying companies that we think have the best attributes that position itself with the best possible chance of outperforming its peer group and its competition over the long term. This usually means that it requires a combination of good people and talent, not just managers, but throughout the company. It requires responsive and resilient business models that are effective, and the ability of the company to execute as a whole. We also look out for financial strength as well, which gives the resource that provides companies with a better chance of taking advantage of weaknesses within the competitive landscape that do come from time to time.

Interviewer: And you mentioned people there - what characteristics are you looking for in a management team?

Adrian: That's, that's quite easy to explain, but quite difficult to assess. We look for management teams that work well together as a team, that demonstrate competence within the fields that they operate or compete in, or the disciplines that they’re engages in. And, more importantly, but more difficult to measure is we like management teams that demonstrate integrity. Where they don’t just make sure that they do what's best for the company, but they make sure that the company does what's best for all shareholders equally.

Interviewer: And how are you incorporating ESG considerations into your process?

Adrian: ESG considerations are very much embedded into our search for quality. Often when we look at business models, and when we talk to management teams, and we assess them, we need to make sure that these management teams and their business models are sensitive to effectively manage the environmental, social and governance issues that are now coming to the fore in the investment community. Many of these issues we have been looking at over the last few decades of investing for the Trust. But increasingly it's coming up in discussions and we need to make sure that our management teams are aware and can communicate effectively about the things that they do to manage these issues.

Interview: Great. Okay, thank you so much Adrian for your insights today and thank you for listening. For more information on the Trust, please do check our website, www.asiadragontrust.co.uk and do look out for future podcasts.

This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for information purposes only and should not be considered as an offer, investment recommendation or solicitation to deal in any of the investments and products mentioned herein and does not constitute investment research. The views in this podcast are those of the contributors at the time of publication and do not necessarily reflect those of Aberdeen Standard Investments. The value of investments and the income from them can go down as well as up and investors may get back less than the amount invested. Past performance is not a guide to future returns. Return projections are estimates and provide no guarantee of future results.

Podcasts from Aberdeen Standard Investment Trusts - invest in good company.

Interviewer: Welcome to the Aberdeen Standard Investment Trusts podcast series, where we get an update from our investment trust managers on their current positioning and the prospects for their sectors. Today we welcome Evert Castelein, Manager of the Aberdeen Standard European Logistics Income Trust, hi Evert. This has been a difficult time for commercial property generally, but in contrast it's also been a favourable time for some of the key long-term drivers on the Trust, such as online retail. Can you give me a top level perspective on the logistics sector across Europe in recent months?

Evert: Yes, of course. I think if you look at the logistics sector, in the last few years, it has been one of the strongest performing sectors in the real estate market and we expect that to remain the case going forward. If for example you look at our house view, we assume that logistics is going to outperform retail and offices, sectors that are being challenged by the working from home situation. And also the growing online consumption which is actually beneficial for logistics, as you said. So of course, logistics has not been immune to what has happened with the Covid virus as it’s an integral part of the economy. And now that there’s a recession across Europe, we clearly see that some companies are struggling, but as a sector logistics has proven to be very resilient. If we look at what’s happened this year, we noticed that the logistics supply chain was disrupted, especially in March and April when several countries went in lockdown in order to flatten the curve. And this has had a disruptive impact on supply chains that were very much focused on efficiency, ‘just in time’ deliveries, making it vulnerable. And if one of the steps is falling away in that supply chain, then goods will not be delivered on time. So that's what we saw initially. And especially companies focusing on international trade, or the automotive industry, or high street fashion and retail or restaurants - they have been, and maybe still are, struggling. But at the same time, we've also seen companies that have benefited from the situation such as groceries, the pharmaceutical industry, and ecommerce in particular. So it’s a mixed picture of how companies are experiencing the current situation. Some may struggle to survive, which could potentially lead to a small increase in vacancy levels. A good thing is that the starting point for the occupier market is really strong as there is an undersupplied situation across Europe with only 4% vacancy on aggregate. So that's extremely low. And there are a couple of structural trends supporting demand side for logistics space such as the rise of ecommerce, which I already mentioned, but also the reshoring of manufacturing activities and building up of inventory levels. If you start with the first one, ecommerce, we strongly believe that the growth of online sales is a structural trend. And yeah, more people are buying more online and in Europe, in 2019, online sales made up 10% of the total retail sales. And this is expected to increase to 15% this year, so that's quite a steep increase. And of course, as always, the best example to look at is Amazon. If you look at what they have done in the last few months, they have recruited 100,000 additional staff and they're expanding their logistics stock by 20%. So that's a big trend. But other big trends are the reshoring of manufacturing facilities - also called de-globalisation - which is a very strong trend. Many companies right now are moving their production activities from China back to Europe. And part of that maybe is related to an increase in wages or the trade war between the US and China. Another very important reason is that many companies wish to make supply chains more resilient to external shocks such as the virus outbreak and lockdown situation. So bringing production back home makes them less vulnerable, and for the same reason many companies are increasing their inventory levels. Something that was seen as weak management in the past because of extra cost, but now we realise that supply chains were maybe too efficient and focused on ‘just on time’ deliveries. And this is now changing, resulting in more demand for logistics space in Europe on aggregate. So this is what we see happening in the occupier market but if you look at the investment market, it's very clear that investors are recognising the opportunities making logistics as an asset class very hot. New fund launches are taking place, fund managers are reviewing existing strategies, for example moving away from hotels and retail and directing capital towards logistics with a strong focus on quality. So high demand will lead to competition and probably result in yield compression and higher property values. So we like to believe that ASELI (Aberdeen Standard European Logistics Income) is very well positioned to benefit from this flight to quality with the portfolio that we have.

Interviewer: Okay, that's great. Can you talk us through the portfolio is as it exists today, and in particular, your focus on the more liquid part of the market?

Evert: Yes, we have a very high quality portfolio with 14 warehouses in the portfolio across five different countries in Europe. Eight of the warehouses actually have been erected in the last few years so they are almost brand new. The majority of the capital has been invested in the Netherlands, where we have six assets right now. And this makes perfect sense to me as the Netherlands is seen as the gateway to the west European market thanks to its strategic geographical position and the largest port in Europe, which is the port of Rotterdam. And that's the starting point for large transport corridors leading towards Germany, Belgium and France to the south. So besides the Netherlands, we have also built up exposure in Germany with two warehouses in the Frankfurt Rhine-Main, two in France, two in Spain and two in Poland. It’s a very high quality portfolio. In sourcing deals, one of the key things to look at for us is liquidity. And with the Trust, we are investing in the most liquid part of the market where there's a lot of demand from both occupiers and investors. So within the segment of big boxes, we are focusing on mid-sized assets, as we think the ultra-big boxes with lot size above 1 million sq ft, for example, leased out to likes of Amazon has absolutely a role to play. But there's probably no alternative if a tenant leaves or gives you a hard time in renegotiating the terms or the maturity of the lease. So these buildings are so big and bespoke that we think it's better to invest in smaller sized assets that typically have a lot size of around 30, 40, maybe 50 thousand square metres.

So that's one. Another focus points for the fund is on urban logistics, a part of the market that we lack in particular. Urban logistics are the last mile delivery hubs. It’s the final step in the supply chain that is needed to deliver the goods that people have ordered online to the end consumer. And the way these operators are competing with each other is on delivery times so you need to get close and at the same the urbanization trend makes cities grow bigger. So there's a lot of competition for land and land prices are going up. And that ultimately will be reflected in higher rents. So we have very high growth expectations for urban logistics where we have built up quite a bit of exposure with the portfolio. The way I look at assets to get an idea of the liquidity is always by asking myself the question, if the warehouse has a second-life, in case the tenants would leave? Am I spending capital on a very large, bespoke, not flexible building with a long lease and a strong tenant on a secondary location, hoping the tenant won’t leave? Or am I investing in an established location with a lot of dynamics and with a building that, due to modern specification, can easily be leased out to another company? And I prefer the latter. I think that's a more liquid investment. And all our assets, I think are located on established locations and have these modern specifications that are needed in today's market. And, yeah, this is what you need, I think to build a durable income stream and pay stable dividends to investors.

Interviewer: Okay, so we can look at the income side in a bit more detail. I understand that rent collection has been reasonably robust, but where you have had tenants in some distress, what sort of conversations have you been having with them?

Evert: Well, I'm very happy with the rent collection so far. Our current estimate for the full year 2020 is that we will collect 97% of annual rent this year. And in today's market, I think that's really high. It's fair to say that the second quarter was challenging as companies started to feel the impact of the lockdown situation. We have collected 85% of rents due for the second quarter. And then the third quarter that number was 96%. Discussions evolve around rent deferrals or rent-frees in combination with material lease extensions. So these were the two options on the table. The majority of the discussions on rent-frees took place in our multi-tenant buildings, where we are dealing with shorter lease durations and where we normally would have had the same discussion on prolongations within the next few years or so. So on balance, there's hardly any difference, I think between the three year cash flow projection pre-Covid and now. And for me as the fund manager, I’m based in Amsterdam, it's really important to have support from our local resources within Aberdeen Standard Investments. ASI is the second largest real estate investor in Europe. And we have local boots on the ground, asset managers that are taking care of day to day business so they are liaising with our tenants, and making sure we make the right decisions together. And it really helps if your colleague based locally speaks the local language to get the best deal together. And, yeah, the property business is really a local and people's business. And that's why scale and local presence is really important. And it's something that sets us apart as a house.

Interviewer: And the Trust has recently maintained its quarterly dividend, which gives some stability for the shareholders. But how are you feeling about the rest of the year and looking into 2021? Are you kind of optimistic, pessimistic?

Evert: I'm not going to predict the future. But all I can say is, based on what we know today, that the logistics as a sector is really hot, and that we are in a really good position with ASELI. So overall, I'm very optimistic and the quality of the portfolio is really high, we have very liquid assets that are all fully leased out, and there's no vacancy, and we've managed the impact of Covid on our tenant portfolio with a satisfying result. And also the loan portfolio, it's very important to realise that there's sufficient headroom on the financial covenants that we have agreed with banks such as LTV and ICR ratios. So risks here are limited which ultimately resulted together with a strong rent collection to keep paying out the dividends, like we've done in Q1 and Q2.

If we look at the future of the logistics sector overall, I think it's really strong thanks to structural drivers such as the growth of e-commerce, which has really given a boost to the sector. And as a Trust, we have ambition to grow as well and to diversify risk with more assets in the portfolio and also focus on our existing portfolio by adding value to these assets with our local teams, for example, by extending our buildings, or by putting solar panels on the roofs and reduce the carbon footprint. So for me as a fund manager, the focus is very much on rent collection, keeping our tenants happy, adding value through active asset management, and growing the fund with new assets with the credit facility that we have put in place, which is a facility that allows us to buy an asset first before we go back to the market for a new capital raise. And at the moment, I'm looking at quite a few interesting deals with local transaction managers, both on an on- and off-market basis.

Interviewer: Great. Okay, thank you Evert for those insights today. And thank you to our listeners for tuning in. You can find out more about the trust at www.eurologisticsincome.co.uk and please do look out for future episodes.

This podcast is provided for general information only and assumes a certain level of knowledge of financial markets.. It is provided for information purposes only and should not be considered as an offer investment recommendation or solicitation to deal in any of the investments of products mentioned herein and does not constitute investment research. The views in this podcast are those of the contributors at the time of publication and do not necessarily reflect those of Aberdeen Standard Investments. The value of investments and the income from them can go down as well as up, and investors may get back less than the amount invested. Past performance is not a guide to future returns. Return projections are estimates and provide no guarantee of future results.

Podcasts from Aberdeen Standard Investment Trusts, invest in good company.

Interviewer: Welcome to the latest in our Aberdeen Standard Investment Trusts podcast series where we catch up with our investment trust managers to look at how Covid-19 is impacting their portfolios. Today, we welcome Ben Ritchie and Louise Kernohan, co-managers of the Dunedin Income Growth Investment Trust (DIGIT). Welcome.

Can we start by looking at the stock market landscape today? There's obviously been a meaningful rally from the very lows seen last month, but which areas have proved particularly resilient and which still look vulnerable? Ben, I'll put that to you first.

Ben Ritchie: Thanks very much Cherry. I think when we look at it overall, it's really quite a complex picture and the environment is as challenging today as it has been probably at any point in my career when we look at what's going on in terms of evolution of markets. I think the important things to remember are that whenever something terrible happens for the economy, whether it's going back to the financial crisis or whether it’s the effect of the virus today, is the future is always uncertain and we don't know what's going to happen and we have to work on the basis of the information which we have available to us. I think when we look at the portfolio today, we feel very well positioned and we think we're in companies that have, generally speaking, got pretty good prospects even if the near term is tough. Where companies are facing more pressure on earnings, they’ve generally got very strong balance sheets, good cash flows or good cash balance sheets which are supporting their businesses through this tough time. And then we've also got a reasonable percentage of the portfolio which is continuing to trade, not completely without effect, but continuing to trade relatively robustly. When we put that all together, we have had less exposure to some of the areas that have been hit pretty hard. I think that that makes us feel that we're reasonably positioned going forward and the areas that have been hit hard, funnily enough have not been that surprising really. I mean, be it areas like travel and leisure, aerospace and defense, the banking sector, which I guess is always going to end up picking up some of the credit tab for the issues that we face, and then oil and gas which has been weak on the back of the challenges there. All in all we’re relatively light in all of those areas and we’re overweight to areas where the prospects look a little rosier, and we've been positioned like that for quite a while. I think when we put that all together, it's tough but we’re cautiously optimistic really about the prospects of the portfolio from here.

Interviewer: And Louise, would you add anything to that?

Louise Kernohan: Yes, just to add, as Ben says, it's a very complex landscape and we've seen quite a wide dispersion of performances between sectors. So you'll have some sectors that have performed very robustly throughout this period so far. So key examples there would be the pharmaceutical sector, which is being held up by being defensive - people still need their medicines. And it's actually those characteristics which are the reasons why it's attractive for us to invest in with DIGIT, and we indeed have an overweight position to healthcare, so that's been a positive. You've seen some sectors where they saw a really sharp decline in March, but then we've seen a subsequent sharp recovery and that is actually perhaps not unfair. For example, the construction and house building industry, we have Countryside Properties, which is an industry where there's a structural supply demand and balance and the government will be keen for that to resume as soon as safely possible and that is possible for those industries to resume in some way, shape, or form.

So there are positives on the horizon there. And then you've seen some industries which suffered badly throughout and haven't seen a recovery where there's just more longer term structural issues at play. So as Ben said, good examples are airlines, aerospace industry, and tour operators, where the outlook is just much more opaque at the moment and challenging. And also banks and oil, which has the structural challenges where again, it's because of these reasons to start with as to why we are underweight those industries. So it's been a tough period, but thankfully for DIGIT, we have been well positioned coming into it.

Interviewer: Okay, and Ben, individual sectors aside, do you think that the measures taken by governments and central banks have largely brought the systemic threats under control?

Ben Ritchie: I think there's a couple of pieces to this really, which is I think first of all, you've got to look at the financial plumbing and it was pretty clear in the first half of March that that was starting to creak and that you were seeing a failure of trust between counterparties within the financial system, be that investment banks, retail banks, hedge funds, asset managers, insurance companies. That whole circle was starting to stop. And when that does happen, we know that the impact of that is extremely bad. But the good thing I think about that element of it is that the central banks and policy makers have had relatively recent experience of how to manage that, both in the financial crisis, and in the Eurozone crisis and they have acted very-very quickly and very-very aggressively to provide effectively cash to actors within that area to support that. So I think that sort of systemic crisis caused by collapsing of natural system, which I think certainly looked like a possibility a couple of months ago, has been taken off the table. I think that's good news. I think the bigger challenge though if we think about it in a wider context is if this is a sort of Lehman Brothers and main street type situation, how the policy makers set about addressing those challenges because that's a lot more complex. You know, you're not just dealing with a couple of hundred financial institutions, you're dealing with literally millions and millions and millions of small businesses and millions of consumers. That's quite tough. So I think from the positive side, I think that the financial system is being insulated and I suspect that policy makers and central banks can make sure that that doesn’t recur through the deployment of their cash flows. I think the bigger challenges are now coming on to how do we manage unemployment, how do we keep the real economy alive during a period of time when activity levels are going to be very, very depressed and that is just perhaps a more complex and more challenging prospect for governments and policy makers globally, particularly I would say in Europe and the U.S.

Interviewer: Louise, I know it's very early days, but I wonder if any of the feedback that you're getting from companies gives any sort of insight or clues into those longer term prospects for companies?

Louise Kernohan: Yes, I mean, when it comes to speaking to the companies and talking about trading trends, the company management really don't know much or any better than any of the rest of us really. I think all of us are feeling our way through here and it can be interesting to hear comparisons to previous downturns, for example, the financial crisis, which can be interesting. So it might be the case that demand slumped for six months, but snapped back quickly before so there's reason to think that it might do it again, but really, because this downturn is so different, being more high street footfall related than being a financial crisis, those comparisons aren't always even going to be valid. So on the trading front, there's not really a huge amount that management can give us insight on. But what there has been a lot focus on, talking to management, has been the factors that they can control. So the primary focus there has first and foremost been on the safety of staff and companies are doing the best that they can to operate the best they can under the current conditions. So with staff either working at home or working on site with strict social distancing. Another focus is on cost, so many of the companies are using the furlough scheme – that scheme is seeing substantial take-up. We’ve seen dividend cuts, and conversations moving onto liquidity. For example, how long can a company operate at this low level of activity without coming into liquidity problems? We're finding that most companies are actually doing a really good job with this. Survivability isn't an issue for the vast, vast majority of companies, and really the question has sort of moved on to now to how can companies operate in a prolonged period of social distancing. And thinking about the fact that social distancing wasn't even a concept for any of us even a few months ago and now whole businesses are having to adapt to that. How do you adapt to a world where say, your demand might be half of what it was previously because of social distancing, but your cost base might not be that flexible. So that's the sort of thing that we're talking to companies about and there's just a wide variety of answers to that. Some companies are more straightforward, others are much more complex and so really sort of taking it on a case by case basis.

Interviewer: You have made some changes to the portfolio over this period, I believe, including raising gearing to reinvest in certain areas. I wonder if you could talk a little about the changes you've made Ben?

Ben Ritchie: Yes, so we acted as markets were performing pretty aggressively during mid-March to raise some additional debt to invest. It wasn’t a huge amount, four million pounds, but it was sort of indicative of the fact that we did see some reasonable opportunities developing to put money to work. And the kind of companies we were buying were businesses which we thought still have pretty solid dividend pending prospects, but where the valuations looked more attractive. Things like SSE, Coca-Cola Hellenic, a Coca-Cola bottling company, but primarily operating in Europe, and Rio Tinto - all businesses which we felt would be solid companies which were then trading perhaps 25% to 30% cheaper than they had done. The timing as ever on that wasn’t perfect as markets continued to go down a little bit more over the course of the rest of March. But we've added again to things like Coca-Cola and SSE a second time and in recent times we've actually been looking to add to some new things as well. So we've taken advantage of a very significant decline in the share price of Intermediate Capital Group, which is an alternative asset manager to be able to build a small position there. We've done the same with Hannover Rueck taking advantage of our overseas capability to buy what we think is one of the world's best reinsurance companies at a pretty reasonable price at a time when the reinsurance markets look like they are poised for growth. We've also bought a stake effectively in the Chinese company Tencent through a Dutch listed company called Prosus, which owns a very large stake in Tencent and trades at a big discount to the value of its assets. So we've been quite active in terms of looking to add things to the portfolio during this period of time. Especially by our standards - we tend to take a fairly long term view, but there have been a few opportunities that are being thrown up by events.

Interviewer: Okay, Louise, how are you making the distinction between companies that are in temporary trouble and those where the outlook has fundamentally changed? Have you exited any positions on that basis?

Louise Kernohan: So that is really the key question for any investor right now - making that distinction between companies where this is a transient problem and where actually this is a longer term issue which fundamentally changes the value of the business. So ever since the start of this crisis, Ben and I have been fully focusing on that and thinking about the businesses. Not just about which ones will survive, I mean that is obviously key, but it's not just that, it’s about also which ones will not only survive, but which will come out in a stronger position. While none of us can predict the future, you can choose winning businesses within an industry that have structural advantages, good financial firepower, which leaves the business in the best possible position. So I mean, an example here would be Rightmove where clearly the UK housing market isn't moving at the moment. Rightmove’s customers, being the estate agents, are in an extremely challenging place, which is naturally going to affect Rightmove and it's easy to paint a bad near term scenario for them because their competitors are offering free services to their customers trying to steal what little business there is out there. But what’s important for Rightmove in terms of thinking about has the outlook fundamentally changed longer term? Well, the reality is that Rightmove’s network remains far, far superior to any of its peers. So, they can try and charge cheaper, but at the end of the day Rightmove’s customers want the website that has the most property on, and the most viewers and they’re head and shoulders above the rest. Very little can threaten that and they have a very strong balance sheet which allows them to not just be able to survive, but to be able to invest in their business and proposition through this period where competitors can't, and so that they come out stronger again. And you know, I don't think any of us are in any doubt that the housing market will start moving again at some point in the future. I don’t know how much or how soon, but people will still need to move houses. So, that's kind of how we've been thinking about focusing on the long term in that respect.

Interviewer: Okay. I wonder if we could also look at the income side. Louise, a lot of companies have been cutting dividends, and while I recognise the type of companies in which you invest may be more insulated from that, how are you managing that in the portfolio? Are you having to take the decision on, where a company has cut, whether you hold or whether you sell out?

Louise Kernohan: I think it's fair to say that this level of dividend cuts hasn't been in anybody's scenario planning. So I think the last time that I checked there were 41 companies in the FTSE-100 that have cut or suspended, and 96 in the FTSE-250. So this is - you know, unprecedented I think is an overused word at the moment, but I mean, it's the right word. So yes, it goes without saying that this is not an easy scenario. A positive for our situation is that our focus on high quality businesses, with, as we’ve spoken about, strong business models, resilient earnings, strong cash flows, strong balance sheets, has led us to start this in a strong position and we estimate that the level of income cuts for us is around 15% to 20%, which would be, I mean, it's moving around quite a lot, but it's less than half of the broader market. So, by not owning the UK banks, by only having minimal exposure to oil has been really helpful during this period. We also entered the year with almost a year's worth of dividend in reserve. So, we're in a strong position on that front. We've always generated some additional income, up to 10% from option writing and that will be helpful this year too. Also to remember that given our strategy that we've been implementing for the past few years of actively choosing to sell higher yielding companies such as the oil majors, which have high yields but low growth prospects, to reinvest in lower yielding companies with higher growth prospects - as part of that process we were planning to run with an uncovered dividend this year anyway. So, whilst the situation isn’t one of anybody's choosing, we started it in a very strong position, so sitting here today we're feeling that we're in a strong position. In terms of what we're not going to do - we're not going to start chasing yield. So, we're not knee jerk selling out of companies that have cut the dividend if we still believe in the long term prospects of that business, and we're not investing in companies that are still paying the dividend at the detriment to investing in the high quality standards that we always do.

Interviewer: Okay. Looking a bit longer term then, it seems clear that the economic growth will be harder to come by as we recover from the virus. You mentioned healthcare earlier, do you think it will be a case of finding pockets of structural growth?

Ben Ritchie: Yes, it's quite interesting actually, Louise and I were chatting the other day, and looking through the portfolio and we actually have more opportunities to deploy money than we have things that we want to sell at the moment. So, I think it’s a good, good position to be in. And we skipped through the portfolio and there wasn't really anything we wanted to sell which is always helpful. You need something to sell to be able to buy, but I think that focusing in on those opportunities is a positive for us at the moment and I think that's absolutely the case. I mean, healthcare is an obvious one in some ways, and we’re operating in an environment where a) that's a relatively stable business and b), there's likely to be more investment in it going forward, but actually when you look at our healthcare exposure, it is more sophisticated than just owning the big pharmaceutical companies. Louise in her other role as the pharmaceutical analyst on the UK team has made a great call on being very enthusiastic about Astra(Zeneca) and Glaxo(SmithKline) for much, much longer than the last few months. Over the last couple of years they've been really good investments for this particular portfolio, but we've also been able to benefit from exposure to companies like Genus, which helps with the production of food through its expertise in production of the sort of reproducing, reproduction capabilities for pigs and for cows. Things like Dechra, which again, is a veterinary science business. Something like Abcam, which is all about antibody production, owning things like Novo Nordisk, again taking advantage of our ability to invest overseas. So we do have that big healthcare exposure, but it's not just big pharma, it's also little businesses as well. And when we look across the picture, we see some interesting opportunities in a number of different end markets to be able to grow. But I think the point is, is that you do have to be very selective. You do have to be niche, but actually there are those potential opportunities out there and I think we are looking at a world going forward from this, and it may be a bit different with a sort of three to five year view, but I'm pretty sure in the near term the environment is going to look a lot like the environment which we've been in. Which is low growth, low inflation, low interest rates. And that is going to create an environment, which as you eluded to earlier, where growth is probably going to be at even more of a premium than it was before. And I think when we look across the portfolio we see good opportunities in a range of areas and also quite a diverse range of different earnings drivers as well, from insurance to clothes, life books through to emerging market asset managers through to branded consumer goods and on to specialty chemicals. You know, we see lots of little areas, but there probably isn’t a big unifying theme behind all of that. It's just lots of little, lots of little areas which we're looking to try and take advantage of, and it's that combination of lots of stock picks all put together that ultimately builds quite an attractive portfolio overall.

Interviewer: Okay. Louise how comfortable are you with valuations in today's market? Do you think they fully reflect the problems out there?

Louise Kernohan: Well, the problem with valuations at the moment is that all the multiples require some estimate of earnings or cash flow. And so that number in the equation is obviously extremely uncertain at the moment. So that means that valuations are uncertain. So if we see a good recovery from here, so what people call the V-shape, then valuations are attractive right now. But on the contrary, if we're standing at the start of deep recession, then on the whole valuations will be expensive, and particularly considering the recent recovery. I think it's also fair to say that we entered at the start of this year with valuations on the whole not being particularly cheap. It's actually quite difficult to summarize on the whole, but I think what is fair to say is that given how volatile markets have been and still are, the markets clearly have a lot of inefficiencies at the moment. So there's a lot of opportunities. So the key is really to look on a stock by stock basis and try to find those companies that have been hit due to concerns, but in fact actually those concerns aren't valid. We have seen that already so far, for example companies like Coca-Cola Hellenic, the soft drink company. It's share price was hit along with some of the worst during March. But at the end of the day, it's a soft drink bottler across a range of geographies, and so whilst not immune because not many companies are, it should prove relatively resilient through this and so we topped it up and we have seen some recovery. And there's lots of examples where there are mis-pricings so that's really what we're trying to find. And as Ben said, there's a lot of opportunity at the moment. Where we really benefit as well is that Ben and I both work on large equity teams. So, we've got a 16 strong UK equity team with full coverage of the FTSE-350, doing a lot of individual analysis of companies, talking to management, doing lots of in depth work. And we’ve got the same size European team, doing the same for European stocks of which we hold a number in the trust. So, we have a really good position in terms of having a lot of resource focused on this and I'm sure there's going to be a lot more opportunities that arise through this situation for valuations.

Interviewer: Okay, and just finally, what reassurance would you give to investors in the Trust that they should hold on through this period of rather nasty volatility?

Ben Ritchie: Yes, a very good question to ask, that one. I think, as Louise said earlier, from an income perspective, we feel in good shape. Though you know, we’ve taken a very, very hefty hit, but it's been a lot less than the wider market. So we think from an income perspective that we're still, given our reserves and potentially the ability to distribute income from capital, from an income perspective we think we're in good shape. From a capital perspective, we don't see any companies in the portfolio that are showing any signs of distress at all and we actually think if anything, there’s a very, very significant percentage of the portfolio which is actually in a pretty good place and provided things recover to some degree, will actually do pretty well. And some of those companies may even do a lot better than that over the longer term. And I think that the point that Louise was making earlier, we both run unconstrained money as one of our key elements and so everything we're asking ourselves about every investment we make is do we think that this is a really attractive total return investment opportunity? That's the first point, and then we look at how much of that return is going to come from income and then we look at what the income requirements of the Trust are. I think that gives us a very different perspective. It's almost like looking down the pipe the other way from a lot of income managers - we start with well, what’s the yield and what's the dividend going to grow at, because ultimately at the end of the day the dividend is just the output of the business and we like to start with the business. I think that's a key thing as opposed to starting from the dividend end of things. If you do that, then generally speaking you're going to end up with a portfolio of really, really good businesses and that's ultimately what makes myself and Louise feel positive is the fact that we've got some really great businesses in the portfolio and their prospects are looking good. At the end of the day, I think as Louise was mentioning earlier, we think that the companies are being managed well and we are ultimately delegating control and management of the businesses to the management teams. You know, by and large we think they've been doing a pretty good job throughout this crisis and meeting the challenges well. And while we don't know how things are going to evolve, assuming, I think it’s fair to assume that over the coming months and perhaps years we will see a recovery of maybe slow but a steady recovery out of this, this trough, then you know, we think we're well placed to go well from here. You know, the performance over the last sort of three or four years since we've taken the helm of the Trust has been good. And if anything, this environment we think sort of suits our style and approach.

Interviewer: Great. Okay. Thank you so much Ben and Louise for those insights today. Thank you also to our listeners for tuning in. You can find out more about the trust at www.dunedinincomegrowth.co.uk and do look out for future episodes.

This Podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for information purposes only and should not be considered as an offer, investment recommendation, or solicitation to deal in any of the investments of products mentioned herein, and does not constitute investment research. The views in this podcast are those of the contributors at the time of publication and do not necessarily reflect those of Aberdeen Standard Investments. The value of investments and the income from them can go down as well as up and investors may get back less than the amount invested. Past performance is not a guide to future returns. Return projections are estimates and provide no guarantee of future results.

Podcasts from Aberdeen Standard Investment Trusts. Invest in good company.

Interviewer: Welcome to the latest in our Aberdeen Standard Investment Trusts podcast series. With me today is the manager of the Aberdeen New Thai Investment Trust. Orsen Karnburisudthi will be talking about developments in the Thai market over the past three months. Welcome Orsen. Now when we spoke last time, we talked about how Thailand had been relatively lightly hit by the virus with a few cases and even fewer deaths. Has that kind of relative success continued?

Orsen: Yes the success has continued. We've had virtually zero local transmissions since May. So it's been over two months where there have been no local transmissions. The only cases coming in would be returning Thais. 99% of these are returning Thais from other countries. The other 1% would be certain cases like diplomats or army military drills. But all in all, the figures are very controlled. The total number to date is just about 3,300 cases with 58 deaths, and that number of deaths hasn't changed for really the past two, almost three months.

Interviewer: And what has that meant for the Thai economy? I mean, has it meant that key sectors such as tourism have bounced back at all?

Orsen: The economic data were stressing monthly high frequency data just tilt down, compared with the same period last year. For example, June exports and imports are down in the range of 20%. What's improving is that this degree is less compared with the previous two months. So it's really coming from a shutdown, a lockdown, that began in March. So the low point was around April May and you're seeing resurgence, companies starting to start production again. The challenge with tourism is that your ports remain closed. And there's no plan yet. And in the next several months, probably the rest of this year, to allow international commercial flights. So we're expecting tourist numbers to be down to about seven to 9 million visitors this year. That's down 85% from 14 million last year, so it's down almost 80%.This is a figure coming from the Tourism Authority of Thailand. So we're struggling along with many other countries in terms of tourists. That said there was a domestic tourism scheme with a 22 billion baht stimulus that encourages Thais to travel up country, in the rural areas with subsidies in hotels, restaurants and transport. So to some extent that would offset the much lower figure from international tourists.

Interviewer: And so is most of the weakness in the GDP numbers coming from that tourism hit?

Orsen: From -- that's one of two areas. The other area would be exports. As you know, global trade US China for the past several quarters has affected not only global supply chains. So these two factors, tourism and global trade has really caused GDP to be very weak this year. So the latest forecast is in the range of 8 to 9% down for 2020. So central bank is expecting negative 8.1. The finance ministry just a few weeks ago came out with minus 8.5. So that's the figure we're seeing. The earlier estimate was in the range of 5 to 10%. So this is really a fine tuning of forecasts.

Interviewer: And looking at stock markets now, I mean they were obviously very volatile across the world for a period of time, but as they’ve calmed down a little and the picture has become a bit clearer, have you made any adjustments to the portfolio or are you largely happy with where it lies?

Orsen: In terms of the market, the big drop was in March followed by the very swift rebound in April. The past two months, June and July have been pretty flat. So pretty much the rebound, the drop from February March back to the levels of June, the markets are pretty much back to the levels of around February right before the Coronavirus hit. So the asset allocation, in terms of the rebound overall in equity has pretty much been back to the levels like I mentioned. And what's changed is now how stock selection is more important in the sense that if you choose to make stock adjustments -- as you say to the portfolio -- for the past three months, we made several changes to the portfolio. We trimmed down several sectors, concentrating holdings for example, property and banks. These two sectors, we exited several stocks. We also added new stocks to the portfolio, initiating stocks iin transport and retail and also in mobile phone information, communication technology type businesses, so it's more strategic adjustments in terms of sectors which we like and also specific stocks.

Interviewer: And how does the portfolio look today? Are there any kind of big themes that you’d draw out?

Orsen: Yes, the biggest exposures for the Trust -- the largest sector is energy and utilities. We are underweight that sector however, it's a bigger sector but it’s underweight. Just by way of we're new to energy but underweight utilities because of just valuations. The next largest sector is construction materials. This is strategically overweight, in the sense that the lower oil prices since March has benefited margins, especially since March and April. So you're seeing these in better relative performances in construction material stocks. These would include cement and tiles. The third largest sector is commerce. This is a big – a reasonable overweight in a sense. We like specialty retailers now so consumer staples are retailing in a sense in a relatively resilient sector within the stock market. For these three sectors, energy and utilities, we have about a 16% rate, construction materials 13 and commerce about 10%.

Interviewer: And, obviously you're talking to companies all the time. What feedback are you getting from them – are they generally optimistic, pessimistic? How are you finding their mood?

Orsen: I think they're more on the cautiously optimistic outlook in the sense that there’s been a gradual loosening of restrictions, but still wary, as is the government of whether there will be a second wave. That's what we're seeing in other countries. So far, we haven't seen any wave but I believe corporates are just being prepared and not being overly optimistic about the trajectory of growth. So retailers have seen a rebound. Rebound since March, April lockdowns. Banks are reasonably cautious in the sense that they have forbearances in terms of their loans. But they have set up a lot of provisions just to be cautious. Construction materials I mentioned, most companies have a pretty muted top line growth, demand will be flat and not down. But their margins will be better just because of lower input prices, lower energy prices, for example. I think overall, what you're seeing from second quarter results, companies are reporting weaker numbers, especially on the top line, most have weaker margins. I think the outlook is pretty, pretty cautious. Just looking at how spending -- how people are spending or how businesses are investing at this point.

Interviewer: And what about the impact on dividends? Is that caution reflected in companies still holding back on dividend payout?

Orsen: Dividends are paid typically as a percentage of profits. So, for the most part companies are maintaining their dividend payout ratios as a percentage of profits. The main exception would be banks where the central the central bank is encouraging banks to reevaluate the capital position to conserve capital and discouraging paying interim dividends. That said, banks capital positions are quite strong -- capital ratios of over 15, 16%. And any worst case scenarios could just take away one or two percentage points. So, I think companies, or at least banks, are just being conservative at this point. Other corporates have declared interim dividends thus far. And it's really just reflecting if profits are lower, then the dividends would be lower proportionally, but dividends are still being paid.

Interviewer: And the Trust has historically had a reasonably high yield. Are you reasonably confident that can be sustained for the year ahead?

Orsen: Yes, looking from the company’s -- the dividend yield, and the amount of yield that corporate and the Trust are paying, it still seems reasonably optimistic that the Trust could maintain a good dividend.

Interviewer: And I mean, looking at markets today, do you think they fully reflect the risk that is still out there? Or is it very much kind of sector by sector. Are there still kind of bargains to be found really amongst volatile markets?

Orsen: I think there are still surprises. Even when companies report their second quarter numbers, there’s still an immediate reaction to the share price either way, either it's a positive or negative surprise. For example, banks that announce large provisions, front loading their provisions, for example, had an immediate drop. That creates opportunities because these are the more conservative banks that are setting these provisions early. For example, construction materials companies, for the most part, have much better margins just because oil prices are low, because spreads have improved because of these dynamics and energy prices. So you're affecting that in the share prices as well. So, the market still sees opportunities, especially across sectors for views, sectors, which we believe will do well in this environment. And the way that our portfolio is positioned, we do like materials just by way of margins. We like commerce, just by way of the resiliency as well as prospects of top line growth.

Interviewer: And what is the Trust’s current position on gearing? Have you been able to use it to your advantage through this period?

Orsen: The gearing is currently 12, 13%. Pretty much unchanged over the past three months. It's just been used just -- as the market hasn't been too volatile. So we haven't really changed the gearing much. Part of it was used to pay for the Trust’s dividend that was paid earlier. But I think we're comfortable keeping around the 10 to 13% level in these circumstances. Of course, if the market drops sharply or increases either way, then I think we could readjust accordingly.

Interviewer: And just finally, could you give some of your views on the outlook for the second half of the year and what investors might be able to expect?

Orsen: The second half is going to be a recovery kind of outlook, just following the trajectory of the economy. The second quarter GDP numbers aren't announced yet. But that would be in the upcoming weeks. We're expecting the GDP drop of low double digits. I think the consensus is 13% compared with the second quarter of last year. If you work out how first quarter is, second quarter and the forecast for full year of about 8 to 9%, then we're seeing slight growth, positive numbers for the second half. So that's what we're expecting in terms of top line and profit momentum for sectors. Of course, this would affect certain sectors, for example, domestic oriented consumption, investment type, government spending type of exposures, and I think our Trust is quite well positioned to that respect.There's still challenges in the tourism and export sectors. Tourism would be reflected in the hotel companies and the airports companies. Even also medical tourism, these are seeing these same poor numbers before in the second quarter. And the outlook is still challenging, at least for the second half of this year. Beyond the second half we’re just thinking a continuation of the recovery. Back to spending, back to a certain sense of normalcy over the course of 2021. And for 2021, we're expecting a GDP growth of in the range of 3 to 5%, which isn't too bad. It isn't back yet to the level of 2019. But going to a certain level of normalcy, granted that global trade through exports or tourism isn’t likely to come back very quickly.

Interviewer: Great. Okay. Thank you Orsen for those insights today, and thank you to our listeners for tuning in. You can find out more about the trust at www.newthai-trust.co.uk. And please do look out for future episodes.

This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for information purposes only, and should not be considered as an offer, investment recommendation or solicitation to deal in any of the investments of products mentioned herein and does not constitute investment research. The views in this podcast are those of the contributors at the time of publication and do not necessarily reflect those of Aberdeen Standard Investments. The value of investments and the income from them can go down as well as up and investors may get back less than the amount invested. Past performance is not a guide to future returns, return projections or estimates and provide no guarantee of future results.

Podcasts from Aberdeen Standard Investment Trusts, invest in good company.

Interviewer Hello and welcome to the latest in the Aberdeen Standard Investment Trusts podcast series. With me today is Hugh Young, manager of the Aberdeen Standard Asia Focus Investment Trust. We're going to be talking about the ongoing fallout from COVID-19 and how he's managing the Trust in these uncertain times. Welcome Hugh. The last time we spoke we were in the early stages of the COVID-19 outbreak and the outlook was still very uncertain. Have you been able to build any clarity around both the economic and corporate outlook in the intervening couple of months?

Hugh: Well, I wish I could be clearer but of course, things are still quite uncertain. Asia has been dealing with COVID arguably much better than many other parts of the world. And COVID has been substantially under control in large economies such as China and smaller economies such as Singapore. Although we have seen second waves of COVID coming in Australia which has caused further lockdown, so I think at the moment it's very much a matter of reacting day by day to news on COVID. I think what has happened, and what has stabilized, is the way much businesses is done within Asia. So I think people have been quick to adapt to new circumstances, change business practices and employ novel practices where necessary. So that's stabilized, but the outlook for broader economic growth is still uncertain given COVID. And of course, we have some of the traditional issues cropping up again. So in recent weeks, we've had the renewal of tension on the US-China trade front, which has really been running sore for a couple of years. So as ever, life is not terribly certain - it never has been. But of course, we're still finding plenty to do and luckily plenty of value within the portfolio.

Interviewer Okay, so how would you kind of describe your current mood? Are you generally optimistic or pessimistic – where do you lie on that?

Hugh: Well, as a fund manager, I think one always borders on the pessimistic and is always looking out for the worst things that can possibly happen and trying to protect things on the downside. And it's certainly hard to be super optimistic about economic growth and this year economic growth is going to be very, very poor. I think to a large extent markets are discounting that and recognising that, so no one expects economic growth to be exciting this year. There are expectations and indeed, growth should pick up next year - there should be a rebound. Not necessarily a complete V-shaped rebound, but nonetheless still a strong rebound in economic growth and in earnings growth. But this year we're not expecting great shakes out of growth in either economies or indeed corporate earnings.

Interviewer And markets have obviously moved a long way. I mean, to the point where people are suggesting that they're looking rather over-optimistic. I mean, to what extent do you think they're adequately reflecting the risks?

Hugh: Yes, I think there's, in broad market terms, I think there is a degree of truth in that when you look at the major indices. Of course, if you dig down and look at the major indices, you'll see that they've really been fueled by the stock prices of a handful of companies and typically that’s the Amazon and Netflix of this world that have been powering the global indices. So as far as we're concerned, where we have a big hunting ground for opportunities among small caps, thousands of small cap within the Asian region. There's still the opportunities, but certainly I worry, looking at some of the major markets, that things have become a little stretched. But that’s largely among the larger cap companies, and very much focused on the internet.

Interviewer And as markets have become a little less volatile, have you made any changes to the portfolio?

Hugh: Yes, we have. Not huge changes, so the portfolio is still very much recognisable from when we last did a podcast. We've added sort of one new holding in Australia – an investment management company, we've been topping up a relatively new holding in Singapore of a hospital company, and various other companies we've been topping up - a financial company in India, for example, where the market’s been quite weak. Conversely, we've been continuing to tidy up in areas where we don't see that tremendous growth. So these are companies that might be in the financial sector. So conversely, having topped up a company in India in finance, we sold our holding in City Union Bank in India which has done well since we bought it. And we’ve been top-slicing various companies in Thailand, Hong Kong, and one in Sri Lanka.

Interviewer And looking at the top 10 holdings today, it's a real eclectic mix. We've got a precision toolmaker, a life sciences company, property company, convenience store chain. What binds them all?

Hugh: Yes, we do – and in a sense it’s been deliberate. We haven't put all our eggs in one basket. We spread our eggs, between countries and between sectors of the economy. And in fact our largest holding is to do with internet shopping which has done fabulously well in Taiwan. And really what binds them, is that in their fields, they're all typically market leaders. That might be a small market - so for example, in Sri Lanka, we have one of Sri Lanka's largest conglomerates who are involved in a variety of fields. But because Sri Lanka's a small country, it's also a small cap. And then we might have a highly specialist company involved in microscopes and the like in Korea, for example, but they're all leaders in their field. And the other thing that binds them is their strong balance sheet. So financial strength has been a key really since day one of Asia Focus all those years ago, because certainly when you're small cap, you never quite know when something goes wrong, and you don't want to be in the grip of the banks if something does go wrong. So that was one reason we've survived various crises quite well, given financial strength.

Interviewer Yes. And presumably that was important during this crisis as well.

Hugh: Absolutely, because certainly for some of our countries, and we do have a couple of hotel companies, about 4% of the portfolio also, which would have seen earnings just disappear. But both groups that we have are backed by a very solid parent, very strong balance sheets – they’re not developing, they're just running hotels. So they don't have huge capital expenditure demands, and they've got through it and they're now seeing business pick up again.

Interviewer And are there any areas where you're finding opportunities or looking around at the moment - either by country or by sector, that are sparking an interest?

Hugh: Funnily enough, I wouldn't say there's any particular area. Given price movements in markets and volatility in markets, suddenly something that you think is not of interest one day might be of great interest the next because of price movements accordingly. And then, of course we're always on the lookout for new investment opportunities. So that might be through initial public offerings, and also uncovering new stocks that not even we have heard of.

Interviewer And where is the trust on gearing at the moment?

Hugh: Oh, yes, that's an important point. Gearing has come down slightly. So we're give or take at about just under 10% geared on a net basis, which is a bit lower than we've been historically.

Interviewer And how are you feeling about the rest of the year? Do you believe earnings will bounce back or is it sector specific or really are we looking into 2021 before anything gets back to any kind of normality?

Hugh: I think general normality - yes, we're probably looking at 2021 for a return to normality. We are seeing, as we speak, a normalisation - so as I mentioned, companies having seen their business drop off the edge of a cliff in many areas. I mean, not all areas – again, a substantial amount of our portfolio has actually been a beneficiary of what's gone on. Certainly the newer companies, the tech companies and the like, even some of the retailers have been beneficiaries. So you’re going to see a mixed pattern, but certainly a better quarter coming ahead. So the bad quarter will have been the second quarter of this year, when the full effects were felt, and now you're seeing a steady improvement, but not a return to normality as yet. I think we have to wait until next year for that.

Interviewer And what about the major risks? I mean, obviously everyone's very minutely focused on coronavirus at the moment, but are there other things lurking in the background that might surprise markets should the coronavirus risks ebb?

Hugh: Yes. They're the broader risks that have been ever present and that we've dealt with since day one of the Trust’s existence. So they’re the broader economic risk of the resurgence of the China-US tension. We've even had India-China tension on the border. It hasn't affected the economies as yet, but again, issues such as geopolitical tension can always throw things off track. And then you have things peculiar to individual countries. It can be due, again, typically things to do with elections, and the like - changes, change of control, new regulations coming in, but these are the things that we've lived with for the last 25 odd years that the Trust has been going. So always things to worry about and we spend our lives worrying.

Interviewer Great. Okay, thank you Hugh for your time today and thank you to everyone for listening in. You can find out more information about the trust at www.asia-focus.co.uk. We're working to keep you updated throughout these tricky times. So please do look out for future updates.

Important information:

This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for information purposes only and should not be considered as an offer, investment recommendation or solicitation to deal in any of the investments or products mentioned here in and does not constitute investment research. The views in this podcast are those of the contributors at the time of publication and do not necessarily reflect those of Aberdeen Standard Investments. The value of investments and the income from them can go down as well as up and investors may get back less than the amount invested. Past performance is not a guide to future returns. Return projections are estimates and provide no guarantee of future results.

Transcript of audio recorded on Thursday 30th July

Podcasts from Aberdeen Standard Investment Trusts - invest in good company.

Interviewer: Hello and welcome to the latest in the Aberdeen Standard Investment Trusts podcast series. With me today is Abby Glennie manager on the Aberdeen Smaller Companies Income Trust. We'll be talking about how smaller company dividends have fared during a tough time for company payouts. Welcome, Abby.

Abby: Hi

Interviewer: Hi. The most recent statistics paint a difficult picture for dividends. UK dividends have fallen by more than half in the second quarter. How have companies in the Trust fared by comparison?

Abby: Yes, so I think the dividend environment has clearly been difficult for all types of companies and that’s been for a variety of reasons. So you know, some companies have actually had challenging operational periods, but some of even the best performing companies have this pressure let’s say of not paying dividends, either because they’ve taken part government schemes, so the furlough scheme or some of the other assistance schemes, or they’ve just felt a bit of pressure to be cautious and hold on to cash reserves because the high level of uncertainty. And you know, there was pressure that sort of if you had taken part in schemes, you shouldn’t really be paying out to shareholders at the time. And I also think there just became a very sort of general view in the market that because of the unusual situation we were in, it was okay not to pay dividends. So companies weren't really being punished for not paying dividends. Now actually, what we've seen across the portfolio is, because we invest in quality businesses they have been businesses with good balance sheets, and they've gone into this in strong positions. Actually a lot of them because of the sectors that they're in and the services that they provide, are actually very resilient throughout this. So right through this period, we saw a lot of stocks in the in the portfolio continue to expect to pay dividends. The thing we've been looking at more recently is that there were some that have surprised us by saying they weren't going to pay a dividend when we thought they were in a position to be able to. And what we've noticed in the past couple of months is that that's really coming back again. So companies who didn't pay before, actually, they're starting to pay dividends quicker than the market expected. Some of them are even making up for the dividends they didn't pay before. So I think overall, while we're definitely not going to be immune from this sort of lower income situation, and where earnings are lower, dividends are going to be lower. But actually, we've been very pleased by the sort of high proportion of stocks in the portfolio that will pay dividends this year.

Interviewer: Okay, and you mentioned that companies are giving a bit more clarity on the outlook. I mean, what feedback are you getting from companies - has that generally left you feeling more positive or negative?

Abby: Yes, so I think there’s still a huge amount of uncertainty in markets, and the degree of that really varies between different industries. So, for instance, if you're in travel and leisure at the moment, I think there's still a high degree of uncertainty. But other industries who have operated throughout this for them more settled environment. So for, like food producers or technology businesses, you know, I think they're in a position to actually feel more certain about their outlook. Some of these companies have even been seeing improving trading through this environment. I think the challenge for a lot of companies from here is that there's a lot of areas that are just outside of their control. So for example, government rate restrictions, and what are demand levels going to be like. But for me, the highest level of uncertainty is probably about unemployment levels, because we're just not really seeing evidence of that yet. Certainly people are still on the furlough scheme, and when I talk to companies, a lot of companies are talking about just not the need to take back everyone off furlough, because they’ve sort of learnt how to operate more efficiently, to be honest. So I think how the government unwinds that furlough scheme and how companies sort of adjust staffing levels, not for cost expenses but just to balance the demand path I think will be tricky. And the other thing that we're seeing is that, I think a lot of the, a lot of the recovery is really going to be about things like consumer confidence and unemployment levels. So in that way we think that the market outlook is much more about main street than it is about Wall Street.

Interviewer: Okay, and with that in mind, have you made any changes to the portfolio in recent months?

Abby: No, we really have made any changes recently. We added a few new stocks at the beginning of the COVID environment. We saw a few interesting investment ideas. We marginally increased our fixed income exposure you know for security of income. But actually, no, in the past few months, we haven't made any changes. I think we feel very comfortable with the positions we have, and how those companies are trading. And importantly as well, the performance of the Trust has been very strong this year so we're really continuing to run with those winners. And we're pleased, you know it's quite a busy reporting season again now, and we're very pleased with the positive reporting we’re seeing at our holdings. And importantly, as well as the sort of share price reaction to those. So even the sort of quality growth businesses which have held up well to this environment, when they are reporting good results, they are also again, seeing share price appreciation.

Interviewer: And, obviously markets have improved quite a long way, although it does seem to have been quite narrowly drawn. I mean, are there areas where you're still finding kind of good value?

Abby: Yes, I mean, because we haven’t been trading the portfolio kind of tells you that we still think there's value in the holdings that we have. So we think because of their operational performance, actually they continue to offer strong investment outcome. I mean, in tough environments, which I think is what we have for at least the rest of this year, probably going into next year easily. You know, I think investors will pay up for that quality growth, and certainly what we've been through the past few months, and just with the level of uncertainty we have in markets and we are going to have increasing unemployment, we're going to have tougher economic growth, how the government's going to pay back and fund all that they've done in recent months is hard to understand. So I just think in that environment, actually sort of resilience and quality and companies you can still grow irrelevant of, you know, all the headwinds against them. I think those become even more valuable businesses. And so when we think about valuation, you know, it's embedded within all of our investment decisions, but actually the value in terms of multiples on our businesses at the moment, even those which have re-rated, they're not at a level that puts us off being long term holders. I think we might see some short value rallies which tend to be bad for our investment process. We saw that in late May but really, I just don't think in this environment that those value rallies are going to stay.

Interviewer: Are there any kind of themes you’d highlight in the portfolio, or any sort of examples that highlight that?

Abby: Yes, I mean, so the themes are really outputs rather inputs of our process. For us it's much more about companies specifics and that bottom up stock analysis. I mean, we're pleased that even where we have exposure to more cyclical sectors, like for example electronics – you know, the names we hold within that very much focuses on those higher quality growth names, that have been resilient and performed well. I think also we’ve seen that through, we've got quite a few asset manager type related stocks that have traded well, so things like Liontrust, AJ Bell, Intermediate capital. But I mean, I guess the key theme in our portfolio is really an investment style which persists throughout. You know, we’re very true to that and we don't step away from that. So the real theme is about that quality and growth, that resilience.

Interviewer: And I mean, obviously there are still risks out there. Coronavirus hasn't gone away. We've seen, you know, a resurgence of the US-China poor relations. But I mean, does the price of smaller companies today reflect those risks do you think?

Abby: Yes, I mean, I think one of the challenges is that smaller companies often just get treated all with the same brush. So despite what resilience they might actually offer at an individual level, we see markets panic towards smaller companies. So we saw them trade off the most when we started this COVID-19 situation. It's the same as when we saw Brexit, back in 2016, when we saw that first trade up, everyone sort of rushes out of smaller companies because they have this risk perception. I think firstly, our investment process is set up to invest in smaller companies in a lower risk way. We do that through the quality focus. And actually, what I would say on an individual level is that often smaller companies can adapt more quickly, you know they're more nimble, and perhaps they play to market niches where they can still grow. And I think the easiest way for people to see examples of that actually is just to look at the businesses in their local community. And what many of them achieved during the lockdown situation. Now actually, a lot of them have thrived and you know it’s been much easier for those companies to adapt.

Interviewer: And just finally, there's been a lot of problems for traditional income funds with areas like banks and the oil majors hit quite hard. Do you think investors should be being more creative in the way they hunt for income, and in particular obviously, should that include a greater focus on smaller companies?

Abby: Yeah, so I mean, I guess what we've been pleased about is the resilience of many of the smaller companies. And, you know, I talked about their ability to actually continue to pay their dividends through the crisis or to return to them more quickly. And I think it'll be really interesting at the end of the year to look back at how smaller companies and income portfolios like this have held up relative to large cap. Because I think some investors will be quite surprised by that outcome. You know, within large cap in some of these sectors which the income funds rely on heavily have been some of the most challenged. Some of them are from pressure by their regulators to not pay any income. And a lot of them are big businesses, which are heavy users of government schemes, which also limits their ability to pay. So actually, you know, I feel like when, where we've positioned ourselves within the smaller companies with that quality resilient business, we sort of capture two elements – we’ve captured businesses with good balance sheets who have been in a strong position to pay. And we've also captured enough businesses in sectors who have traded well through this environment. They've also been in a position to pay. So I think, yeah, I think some people could be surprised at the end of this year.

Interviewer: Great, okay. Thank you so much Abby for those insights today and thank you to our listeners for tuning in. You can find out more about the trust at www.aberdeensmallercompanies.co.uk and please do look out for future episodes.

Important information:

This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for information purposes only and should not be considered as an offer, investment recommendation or solicitation to deal in any of the investments of products mentioned herein, and does not constitute investment research. The views in this podcast are those of the contributors at the time of publication and do not necessarily reflect those of Aberdeen Standard Investments. The value of investments and the income from them can go down as well as up, and investors make it back less than the amount invested. Past performance is not a guide to future returns, return projections are estimates and provide no guarantee of future results.