Saba Capital Putting trusts back in the public eye Smaller companies Ripe for a reappraisal ISSUE 38 SUMMER 2025 The investment trust magazine from Aberdeen Tax-efficient savings Use your annual investment allowances Navigating tariffs and trade. Managing the Murray International portfolio amidst tariff uncertainty
Aberdeen Investment Trusts Invest in good company. Invest in your future. Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London, EC2M 4AG. Authorised and regulated by the Financial Conduct Authority in the UK. Tax efficient investing invtrusts.co.uk If you’re keen to capture the potential offered by global investment markets, take a look at Aberdeen Investment Trusts. Managed by teams of experts, each of our trusts are designed to bring together the most compelling opportunities we can find to generate the investment growth or income you’re looking for. Tap into Aberdeen’s specialist expertise across a wide range of different markets and investment sectors – both close to home and further afield. There’s plenty of choice to target your specific investment goals, whichever stage of life you’re at. Please remember, the value of shares and the income from them can go down as well as up and you may get back less than the amount invested. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Eligible for Individual Savings Accounts (ISAs) and Self-Invested Personal Pensions (SIPPs). Invest via leading platforms. Find out more
The investment trust magazine from Aberdeen 08 Journalist comment Jonathan Davis on the impact of Saba Capital’s campaign on the Investment Trust sector. Smaller companies The sector is ripe for a reappraisal, say Abby Glennie and Gabriel Sacks. 12 14 Chair’s view Sarika Patel, Chair of Aberdeen Equity Income Fund on stock picking strength. 04 W elcome Update from Christian Pittard 06 Murray International Navigating tariffs and trade 10 Have your say Why your voice matters 16 A berdeen Asian Income Fund Quality counts in interesting times 18 Tax-efficient savings Use your annual investment allowances 20 Postcard from India Rita Tahilramani looks at US-India relations 22 I nvest in good company Learn more about our range of investment trusts and how to invest 24 Risk factors General and specific risk factors applying to Aberdeen’s investment trusts 3
Welcome to the latest edition of The Bulletin. Since I last wrote to you, the activities of Saba Capital Management, a US activist hedge fund, have been generating headlines in the investment trust universe. Over time, Saba had built sizeable stakes in several leading investment trusts whose shares were trading at wide discounts to their Net Asset Value, so represented attractive arbitrage opportunities for Saba. At the tail-end of 2024, Saba requisitioned general meetings at seven trusts, with a proposal to replace incumbent boards. Although all seven votes ultimately failed at the initial general meetings, Saba’s actions have helped remind the industry of the need for trusts to remain focused on acting in the best interests of shareholders. Although Aberdeen investment trusts were not amongst those targeted in Saba’s campaign, as an investment house we are well aware of the need to deliver long-term value to shareholders. We also recognise the need to keep shareholders fully informed and empowered to vote on matters relating to their trusts, be these routine or strategic issues; indeed, this is an issue where Aberdeen’s platform business interactive investor has made huge strides forward in recent years. In this edition of The Bulletin, we are pleased to share Jonathan Davis’s insights on the impact of the Saba campaign. Jonathan is Editor of the annual Investment Trusts Handbook and host of the award-winning Money Makers podcast. Our cover story considers the impact of President Trump’s shifting tariff regime from the perspective of Murray International’s investment managers, Martin Connaghan and Samantha Fitzpatrick. We also feature an interview with Sarika Patel, Chair of abrdn Equity Income Trust on the prospects for UK equities – is there finally light at the end of the tunnel? As well as this, you will find a range of contributions from abrdn investment managers plus perspectives from several external contributors. Awards and anniversaries In a year of quite unparalleled geopolitical uncertainty and stock market volatility, it has been satisfying to see Aberdeen and several of its investment trusts receiving awards recognition: The Association of Investment Companies (AIC) recognised both abrdn Asia Focus (AAS) and abrdn UK Smaller Companies Growth Trust (UKSC) as “ISA millionaires’”, in a compelling demonstration of how investment trusts’ can deliver impressively strong performance over the long term. Had investors invested their full ISA allowance annually into AAS from 1999 to 2024, this would have generated a taxfree pot of £1,792,184, whilst for AUSC the equivalent figure would have been £1,129,455. The AIC listed Aberdeen Equity Income Trust, Murray Income Trust and Murray International Trust as 'Dividend Heroes', in recognition of their delivering over 20 consecutive years of dividend growth. abrdn UK Smaller Companies Growth Trust won the coveted 'UK Smaller Companies – Active' category at the AJ Bell Investment Awards 2024, as voted for by AJ Bell platform investors. Aberdeen was named 'Best Investment Trust Manager' and ‘Best Fund Manager’ at the UK Investor Magazine Awards 2024, whilst Murray Income Trust was named Best Equity Income Trust. These awards provide an opportunity for investors to applaud excellence from investment providers serving private clients across the UK. We value these achievements as they raise awareness for the relevant trusts, and stand to generate additional shareholder demand, to the potential benefit of all investors. In other news, two of our Asian trusts celebrate significant milestones this year. abrdn Asia Focus reaches its 30th anniversary (having launched in October 1995) while Aberdeen Asian Income celebrates 20 years (December Christian Pittard Head of Closed End Funds Welcome 4 The Bulletin | Issue 38 Summer 2025
2005). Both trusts have always sought to harness the potential of Asia by taking a long-term view of companies and looking to find those that can deliver returns well into the future. We acknowledge the intelligent and thorough stock selection that has always been crucial to both trusts’ approach in Asia. Tax-efficient investment opportunities for 2025/26 The 2025/26 tax year is well underway. With it comes another opportunity to take advantage of tax-efficient investment opportunities available to eligible UK investors. This includes up to £20,000 in a Stocks & Shares Individual Savings Account (ISA). Or, for those saving for retirement, a Self-Invested Personal Pension (SIPP), where you can invest all your earnings into a SIPP, subject to a maximum of £60,000 per tax year. All of Aberdeen’s Investment Trusts are eligible for both ISAs and SIPPs, available through interactive investor and other platforms. I invite you to look at our range of trusts, plus details on how to invest, on pages 22 to 23. Change of name, but business as usual In March, we announced a change of name for our investment management business, from abrdn plc to Aberdeen Group plc. This change has no impact on the management of your investment trusts nor their strategies. However, it does mean that individual investment trust boards may recommend changing name at the next routine opportunity, to ensure alignment with the investment manager. For trusts proposing such a change, resolutions will be put forward at AGMs as required. An early adopter was abrdn Asian Income Fund Limited which became Aberdeen Asian Income Fund Limited on 1 June 2025. Looking forward I hope you enjoy this latest edition of The Bulletin. We are keen to canvass opinion on whether there is demand for a hard copy, printed version of this publication, which would be sent to you by post. If you would find this useful, please do let us know by emailing us at trusts@aberdeenplc.com. We will consider all responses carefully. Thank you for your ongoing support. 5 Welcome
Navigating the Trump tariffs Martin Connaghan, Samantha Fitzpatrick, Co-Managers of Murray International Trust PLC Since his January 20th return to the White House, President Donald Trump’s tariff shifts have been an unpredictable roller coaster ride. The saga remains a situation “in flux” and one that could have serious implications for the global economy. However, at the time of writing1 no one knows where the tariffs will eventually land, nor what concrete agreements between the US and its global trading partners will result. Fears focus on the threats to economic growth and inflation around the world (not least the significant inflationary impact that could be borne by US citizens). As things stand, financial markets are volatile, continuing to chop and change in response to each bit of speculation and new Trump threat. “Make in America” Trump’s broad ambition is to address trading imbalances between the US and its global trading partners. He is keen to remove unfair trading practices, reduce imports and expand domestic manufacturing (‘Make in America’). April 2 was the President’s so called “Liberation Day”, which introduced a baseline 10% tariff on all US imports, alongside a raft of additional ‘reciprocal tariffs’ targeting dozens of countries. An initial 54% tariff on Chinese imports quickly escalated to 145% after retaliatory measures from Beijing. These moves triggered sharp declines in global equity markets, notably in US stocks. A subsequent sell-off in the US Treasury market led to the largest spike in yields in over 40 years, prompting the administration to partially reverse course. On April 9, the tariffs beyond the baseline 10% rate were suspended for 90 days, except in the case of China, and further levies on carmakers were removed late in April. Against this backdrop of uncertainty, many companies understandably revised or withdrew their earnings forecasts. Tit-for-tat with China China, considered the very worst tariff offender of all, had received the biggest punishment. Tit-for-tat tariffs and retaliatory measures continued throughout April, with US tariffs on Chinese imports (and vice-versa) skyrocketing before Chinese-US negotiations took place in early May and the levies were reduced by both sides and some were suspended. So, a truce is in place but what happens next, only time will tell. UK and US reach trade pact…. The US and UK announced a trade pact between the US and the UK in early May. The standard 10% base tariff remains in place but concessions were agreed by both sides, such as reduced tariffs on UK car exports from 27.5% to 10% and UK market access for US beef exports. Trump’s ‘Truth Social’ social media platform proclaimed on 23 May that “our negotiated deal with the UK is working out well for all”. 1 26 May 2025. 6 The Bulletin | Issue 38 Summer 2025
… while EU negotiations fell apart Things can change quickly under a Trump presidency: in late May, trade tensions between the US and the European Union erupted when Trump dismissed ongoing discussions with the EU bloc as “going nowhere”. This may prove to be a simple negotiating tactic, but the threat to introduce 50% tariffs on the EU sent shockwaves through global markets that day. Then, just three days later, it was announced that Trump’s threat had been deferred until 9 July to allow more time for talks. Despite the threatening rhetoric, we still think that the broad reality of Trump’s tariff regime is likely to be more nuanced. The US doesn’t have the capacity or the skillset to replace all imports with domestic options any time soon and he will be conscious about raising inflation. Countries are likely to respond to tariffs in kind, as we have already seen. It would be naïve of the US to assume that the impact will all be one way. Managing a portfolio while tariff uncertainty lingers At Murray International (MYI), our overriding approach so far this year has been one of caution: we look at the world and we see a myriad of issues, be they geopolitical pressures, the rising cost of living, muted economic growth, higher-for-longer interest rates, not to mention tariffs. However, the situation does not keep us awake at night. The biggest advantage we have is the flexibility of our investment mandate. We’re simply looking to invest in around 50 companies that can deliver strong and rising income and growth of capital. We’re not bound by sectoral or geographical constraints so we can focus on what we believe are the best investment propositions around the world. It’s a good place to be, whatever the backdrop. Of course, we can’t ignore tariffs. It’s important to understand where the potential vulnerabilities are within our portfolio and try to put some parameters around its possible impact. We hold Germany’s Mercedes Benz, for example. We need to understand how tariffs could impact the car manufacturer’s supply chain and push up its prices, which in turn could influence demand. The uncertainty is clearly unhelpful. We have been through this before, with companies such as Pernod Ricard. China imposed anti-dumping tariffs on EU brandy imports in October 2024, hitting sales of the French firm’s Martell Cognac brand. Pernod Ricard saw its sales in China drop 25% overall in the first half of its 2025 financial year. However, this type of issue will rarely make or break the type of companies we hold and may even be a buying opportunity if the price over-corrects. This is an environment that requires flexibility. We need to be alert to companies that could have vulnerabilities and assess the potential outcomes. The situation is frustrating but should become clearer over time, and we will be able to gauge how companies are handling it. However, tariffs are not new, and good companies can navigate these threats. Facing challenges with confidence Negotiating financial markets remains as challenging as ever. As we look forward, the geopolitical environment remains polarised and uncertain, bringing opportunities and risks. We still expect that interest rates may be higher for longer than many had expected, leaving governments counting the costs of existing debt levels and expanding fiscal deficits. These uncertainties will continue to dominate the headlines and impact investor sentiment and, at times, the direction of capital markets. We will wait and see whether tariff threats convert into additional tariffs actually being introduced. We remain calm as we believe the current market conditions favour the “bottom-up” investment approach that we use to identify the companies that can successfully navigate the challenges they will face. We will continue to maintain a truly global portfolio, diversified by region and sector, in companies exhibiting robust earnings, strong balance sheets, and positive, growing cash flows, a portfolio which we believe can deliver a combination of long-term growth in revenue and capital ahead of inflation. Find out more at aberdeeninvestments.com/myi 7 Murray International
Saba Capital Management, a US hedge fund founded by chess prodigy Boaz Weinstein, first emerged as a prominent activist investor in the UK investment trust sector in 2023. It has since targeted nearly 20 investment trusts whose shares were trading at wide discounts to their Net Asset Value (NAV), building sizeable stakes and seeking to pressurise their boards into doing more to enhance shareholder value. Saba puts investment trusts back in the public eye Jonathan Davis, Editor of the annual Investment Trusts Handbook and host of the award-winning Money Makers podcast 8 The Bulletin | Issue 38 Summer 2025
The first of its campaigns to hit the headlines centred on European Opportunities Trust (ticker EOT) following a period of poor relative performance under founder and manager Alexander Darwall. Saba lobbied the board for change and eventually secured a number of concessions. The trust introduced a tender offer which gave 25% of shareholders the opportunity to exit the shares at a small discount to NAV and on that basis survived its continuation vote. Following this partial success Saba continued over the course of 2024 to build shareholdings in a range of other trusts, including large and well known names such as Herald (HRI), and several managed by reputable fund managers Baillie Gifford, Janus Henderson, Schroders and J.P.Morgan. The aim was to force the boards into actions that would reduce the significant discounts at which they continued to trade, allowing Saba to exit with a profit as and when those discounts closed. Upping the stakes When this largely failed to happen, Weinstein upped the stakes again by building even bigger shareholdings, up to 29% in some cases, and using them to call extraordinary general meetings at which shareholders were invited to sack all the existing directors and replace them with Saba’s own representatives, who after taking control would then award the management contracts for the trusts to Saba itself. No activist investor has ever adopted such an aggressive strategy or on such a scale before, at least in public. In the event Saba’s “big bang” approach, unveiling all seven of these campaigns on the same day, shortly before Christmas last year, rather backfired. All the boards involved were galvanised into action, mounting a coordinated and ultimately highly effective campaign to persuade their shareholders to reject the proposals at the EGMs. The board of Herald Investment Trust led the way, securing 65% of the vote on an 80% shareholder turnout. The other six trusts also had large majorities against Saba. The latter’s rather bizarre choice of trusts to target, its hostile rhetoric and its implausible claim to be acting for “Mom and Pop” private investors rather than its own self-interest all worked against it. That however is not the end of the story. Saba remains a significant shareholder in many trusts, and its ongoing campaign, although mostly unsuccessful in its stated aims, has clearly prompted significant change in the sector. Two of the smaller and less successful of the seven trusts highlighted in the New Year campaign, Keystone Positive Change (KPC) and Henderson Opportunities Trust (HOT), have since agreed or accelerated plans to wind themselves up and a third, The European Smaller Companies Trust (ECST), has struck a deal with Saba that should allow the hedge fund to exit most or all of its holding at a profit via a 42% tender offer. Wake-up call What is not in doubt is that the extensive media coverage of Saba’s public campaign has served not just to put investment trusts back into the public eye, but also acted as a wake up call for the sector as a whole, by underlining the need for boards to take more decisive action to eliminate the wide discounts which have prevailed for more than three years now. The average discount at the time of writing is around 16%, compared to just 2% at the end of 2021. This is despite a record amount of share buybacks, a string of mergers and/or takeovers, and scores of trusts voting to reduce their fees and in several cases to wind themselves up after failing to find new buyers for their shares. It is difficult to deny that this renewed focus on self-help has been anything but to the benefit of investment trust shareholders generally. While other factors, notably rising interest rates, have contributed to the defeating of the investment trust sector over the last three years, boards have clearly realised that they cannot afford to sit idly by. Many are now urgently looking to engage more directly and more frequently with their shareholders. Platforms have been cajoled into making it easier for private investors to vote their shares, something which historically has been hard to do in certain cases. Engaging with shareholders Although Aberdeen Investment Trusts were not amongst those targeted in Saba’s pre-Christmas campaign, Christian Pittard, Aberdeen’s Head of Closed Ended Funds, notes the importance of shareholder engagement: “It is vital that shareholders are kept ‘in the know’ about their investments and we encourage them to vote on matters that could impact them. We have engaged proactively with investors holding Aberdeen trusts via platforms for several years. We encourage all those who don’t currently receive our targeted communications to sign up to do so.” You may not like the aggressive style of US hedge funds, but the impact of Saba Capital’s campaign is not going to fade any time soon. It has underlined two important messages: for boards it is a timeless one of “adapt or die”; and for shareholders it is “don’t bet against investment trusts’ ability to recover from hard times”. They always have done so in the past and they will do so again. Find out more at money-makers.co don’t bet against investment trusts’ ability to recover from hard times. 9 Journalist comment
As a shareholder in an investment trust, you’re not just an investor - you’re a part-owner. That means you have a real say in how your Company is run. At Aberdeen, we believe that your voice matters, and we want to empower you to use it. Don’t be a passive investor Investment trusts are unique. Unlike other pooled investment vehicles, they are listed companies with boards of directors who are accountable to you, the shareholder. That gives you a powerful opportunity to influence how your trust is managed - from voting on key decisions to engaging with the board and fund managers. Being an active shareholder doesn’t have to be timeconsuming or complicated. In fact, it’s now easier than ever to stay informed and involved. Stay informed, your way We know that everyone consumes information differently. That’s why we offer a range of ways to keep up to date with your investment trust: • Visit our website invtrusts.co.uk for regular updates from our fund managers, including performance reviews, portfolio changes, and insights into what the future might hold in an increasingly uncertain world. • Sign up for email updates at invtrusts.co.uk/signup to receive content in the format that suits you best - whether that’s short videos, podcasts, written articles, or invitations to live events with Q&A sessions. It’s never been simpler to stay connected with your investments. Use your vote Your vote is your voice. Whether it’s electing board members or approving important resolutions, your vote helps shape the direction of your investment trust. And thanks to improvements across investment platforms, casting your vote is easier than ever. Keep an eye out for alerts from your platform and make sure you take action. We’re also proud to support the AIC and its excellent “My Share, My Vote” campaign, which is all about encouraging shareholders like you to get involved. You can learn more about the campaign and how to participate here: theaic.co.uk/my-share-my-vote Join us at events We love meeting our shareholders face-to-face. Whether it’s at Company AGMs or broader industry events like Master Investor or the AIC’s Private Investor Conference, these are fantastic opportunities to meet the team behind your investment trust, hear directly from fund managers and board members, ask questions, and share your views. Want to know where we’ll be next? Register here invtrusts. co.uk/events to receive updates on upcoming events. And if you can’t make it in person, don’t worry. Each of our investment trusts hosts a pre-AGM webinar, where you can hear a presentation from the fund manager and take part in a live Q&A with both the manager and the Chair of the Board - from the comfort of your own home. Your Investment. Your Voice. Your Future. Being a shareholder in an investment trust means more than just watching your investment grow. It means having a say in how your trust is run, staying informed, and making your voice heard. We’re here to help you do just that. So don’t just invest - engage. Why your voice matters as an investment trust shareholder Being an active shareholder doesn’t have to be time-consuming or complicated. In fact, it’s now easier than ever to stay informed and involved. 10 The Bulletin | Issue 38 Summer 2025
Register here invtrusts.co.uk/events to receive updates on upcoming events. Sign up for email updates at invtrusts.co.uk/signup 11 Have your say
Smaller companies have a well-established reputation for delivering higher returns than their large cap peers over the longer term. This phenomenon has been labelled “the small cap effect” and has endured through economic and financial market turmoil over multiple decades. More recently, that effect has gone awry, but this could be about to change. Stars align for smaller companies across the world Abby Glennie, Co-Manager, abrdn UK Smaller Companies Growth Trust Gabriel Sacks, Manager, abrdn Asia Focus It has been a tough period for smaller companies, but the sector is ripe for a reappraisal. 12 The Bulletin | Issue 38 Summer 2025
Over the long term, smaller companies have an impeccable track record of outperforming their larger-cap peers. Since 2000, the MSCI World Small Cap Index has delivered an annualised return of 8.7%, compared to 7.1% for the MSCI All Companies World Index (MSCI ACWI). This is in spite of the astonishing run for technology giants, such as Amazon, Apple, Microsoft and Alphabet, which form a significant share of the World Index. The exact reasons for this strength are multi-faceted. First, there is simply the law of big numbers. It is easier to grow a smaller company by 10% than it is to grow a large company by the same amount. If a small company has 1,000 customers, it needs to find 100 more, whereas the larger company, with 1,000,000 customers, needs to find another 100,000. At the same time, smaller companies tend to be more dynamic. They may have flatter management structures and are fleeter of foot. They can react quickly to changes in the business environment, which helps them exploit emerging opportunities, unencumbered by legacy systems and processes. They may also be more domestic in nature, leaving them with shorter and more adaptable supply chains. At a time when global trade is disrupted, this could be seen as a key advantage. A final point is that smaller companies tend to be underresearched. Many fund groups do not have the time and resources to devote to this part of the market. This can give rise to mispricing, which makes smaller companies a fertile hunting ground for active managers. Adjusting for the situation today Smaller companies may struggle when investors are nervous, notably during times of weak economic growth. They may also suffer when interest rates are rising. The lingering perception is that they have higher debt than their large cap peers. They are seen as more exposed to the local economy in which they operate, which can be a drag on sentiment. At Aberdeen, we believe our investment approach adjusts for these drawbacks. It helps direct us to higher quality smaller companies, with lower debt and a strong pathway of sustainable growth. It also steers us to companies that are exhibiting momentum, such as seeing upward earnings revisions. We find that businesses with these characteristics have generally been able to navigate a tougher economic climate successfully. They may even profit from them in the longer term as their competitors struggle. However, in the short-term, investors tend to treat these high-quality companies in the same way as their peers, which creates opportunities for long-term investors to buy at lower valuations. This, we believe, is the situation today. Cheap, and getting cheaper In recent investment markets, weak sentiment has persisted towards smaller companies long beyond the point where it was supported by fundamentals. Valuations are low versus their history, versus their earnings prospects and versus their large cap equivalents. Small caps started to stage a recovery in the first half of 2024 but have been knocked off course by market volatility so far in 2025. It is not unusual for small-cap stocks to experience prolonged periods of underperformance relative to largecap stocks. The CFA Institute points out that small-cap stocks underperformed large-caps during the periods 1955 to 1962, 1977 to 1978, and 1989 to 2005. On average, the small-cap vs. large-cap cycle lasts about nine years, while this cycle is now 12 years and counting. In the UK and Asia – two key areas of small cap focus for Aberdeen - small caps outperformed large caps in April’s market recovery. Once the Trump turmoil starts to ebb, selected smaller companies may be rewarded because they are less exposed to global supply chain disruption and also have a significant valuation cushion. Smaller companies would also be beneficiaries if investors started to look beyond the mega-cap technology stocks for alternative sources of growth. We have two trusts that are focused on this part of the market – abrdn Asia Focus and abrdn UK Smaller Companies Growth Trust. There are different dynamics for each. In the UK, smaller companies have lagged a recovery in large cap companies. As investors start to rediscover UK markets, this could trickle down into smaller companies. The UK economy has tentatively returned to growth in recent months, with interest rates and inflation dropping, which should provide a favourable backdrop. In Asia, small caps did well for much of 2024, largely as a result of the lower exposure to China in the universe (China only forms around 13% of the MSCI Asia ex Japan Small Cap Index ) and a strong performance from Indian smaller companies. They have struggled in the recent global turmoil and this has brought valuations lower, making them more attractive to long-term investors. They may also be beneficiaries of lower interest rates globally and across the region. Looking ahead Some of the most dynamic and exciting growth companies are to be found among smaller companies. They may have struggled with poor sentiment over recent times, but with valuations far lower, the stars could be aligning for a small cap revival. A reappraisal for the sector could be imminent. In fact, it may even have already started. Find out more at aberdeeninvestments.com/aas aberdeeninvestments.com/ausc 13 Smaller companies
These are circumstances when bottom-up, stock-picking managers can really prove their worth. Sarika Patel, Chair, Aberdeen Equity Income Trust Aberdeen Equity Income: a trust for all seasons Indeed, during such periods it can be quite a challenge for actively managed funds and investment trusts such as Aberdeen Equity Income Trust (AEI) to actually beat the market and outperform index tracker funds, when the stock of even mediocre businesses is being carried on that rising tide. But now is not one of those times, and nor are the coming months likely to get easier for investors. President Trump has thrown global trade into chaos with the imposition of brutal tariffs on exports to the US worldwide; that’s compounded by profound uncertainty as to what he’ll announce tomorrow, let alone next month. It’s a time when worried investors need to be able to take comfort from their fund’s inherently robust structure and philosophy of resilience. As Chair of the board of AEI, I believe our investment trust ticks those boxes in several respects. Stock-picker strength For a start, these are circumstances when bottom-up, stock-picking managers can really prove their worth. Because they focus on building a portfolio by assessing the fundamentals of each company in their universe, good managers can identify high-quality businesses with the robust balance sheets, experienced management teams and market strength to thrive regardless of short-term macroeconomic noise. AEI has an additional advantage in this respect, in that unlike many peers its managers are not confined to a specific segment of the stock universe - large companies, for instance – or obliged to follow a particular index. Instead, the team adopts an all-cap, index-agnostic strategy, which means it can look in places where others cannot go, including those under-researched parts of the market where interesting opportunities are most likely to be uncovered. Nor is the investment process merely a matter of ploughing cash into a portfolio of stocks and stepping away. We believe that working with the companies we invest in and engaging with them on an ongoing basis is crucial to ensure high-quality corporate governance. Though we are not a dedicated ESG fund, we concentrate specifically on governance, on the grounds that companies with strong governance in place should be well-run and are therefore less likely to slip up on environmental or social issues. That focus on corporate engagement and on fostering a robust ESG culture in the portfolio of companies helps AEI both to generate stronger returns and to manage risk effectively. Inherent income advantage Historically, stocks that pay a decent dividend have been 14 The Bulletin | Issue 38 Summer 2025
an attractive proposition in times of market turbulence, because that regular income provides compensation for investors when capital growth is hard to find. A regular and consistent income is particularly important for older investors who already depend on it to supplement their pension, of course. But even if you’re still decades away from retirement, those additions to your portfolio, help to boost compounded returns over the long term. As an equity income investment trust, AEI currently pays a meaty yield of around 6.5% (as of 9 June 2025). Moreover, because it is structured as an investment trust it has an inherent advantage in terms of income consistency, although do remember of course that future dividends are not guaranteed. Unlike open-ended funds, it is allowed to hold back up to 15% of the dividends paid by its portfolio companies each year, and those reserves can be used at the Board’s discretion to boost dividend payouts to investors in leaner years. This capacity makes it much easier for investment trusts with an income focus, like AEI, to provide a reliable income stream, maintaining or growing their dividend distributions year on year. Indeed, the Association of Investment Companies (AIC) has recognised those trusts with outstanding records in dividend growth, highlighting the small number with more than 20 consecutive years of rising dividends as Dividend Heroes. AEI, with 24 years of payout growth now under its belt, makes the cut as a Dividend Hero - an achievement of which the board and managers are justly proud, and which itself helps cement dividend reliability as a key feature of the fund, as well as currently trading at a premium. Engaging with our shareholders Growing numbers of individuals these days are hands-on investors, utilising user-friendly investment platforms such as interactive investor to run their portfolios themselves, rather than paying an intermediary to do it for them. It’s therefore becoming more and more important for the boards of investment trusts to reach out to their private shareholders and encourage them to be actively engaged with the big questions facing their investment trust. That means asking questions, holding the managers and board to account where necessary, and voting when the opportunity arises. At AEI, we are making a concerted effort to engage with our shareholders and understand as much as possible their perspectives on their investment. For example, I am really keen to know how important income consistency is to them. The most obvious opportunity to get to meet and talk to shareholders is at the annual general meeting (AGM). The Board warmly encourages shareholders to attend the AGM, but we appreciate that it’s not convenient for everyone. To address this, we hold a very well attended pre-AGM webinar with a live Q&A, and we’d love to hear from as many shareholders as possible through that route, if they can’t make the AGM itself. Investors can also sign up for regular email updates through the website. I want to get the message across that AEI belongs to all its shareholders - and everyone has a stake in its resilience and success, year in, year out. Find out more at aberdeeninvestments.com/aei 15 Chairs view
Aberdeen Asian Income Fund: quality counts in interesting times Eric Chan, Co-Manager, Aberdeen Asian Income Fund The world has become an exceptionally unpredictable place for both private and professional investors in recent months, as President Trump’s administration has taken a sledgehammer to the global trade system. To borrow from the oft-repeated Chinese curse, the portfolio managers of many Asian funds in particular find themselves “living in interesting times” as the tariff war between China and its regional neighbours and the US continues to play out. However, for funds and investment trusts with a focus on domestic Asian or global demand, the negative impact of US tariffs is likely to be limited in terms of corporate fundamentals. The portfolio of the Aberdeen Asian Income Fund (AAIF) occupies such a relatively robust position, as manager Eric Chan explains. “Only about 15% of our portfolio investments are affected by these tariffs, and even then the impact is minor because US sales make up only a small part of their overall revenue,” he says. Heightened unpredictability under this new regime means Chan and the team are of course keeping a close watch on trade developments. But, he says: “I remain confident of the growth prospects of our portfolio companies, which have historically demonstrated defensiveness in challenging times.” AAIF consists primarily of dominant domestic champions and global market leaders, and these “are better able to navigate volatile periods, while having the business models, balance sheets and cash flows to continue paying attractive dividends”. 16 The Bulletin | Issue 38 Summer 2025
Portfolio examples include Telstra Corporation, an Australian telco that remains unaffected by the tariffs, and Fuyao Glass, a Chinese auto glass manufacturer that makes most of its US sales from a plant in the US, thereby minimising the tariff impact. Resilience rewards In such an uncertain environment, the trust’s focus on quality companies becomes all the more significant. Not only should these businesses be more resilient in the face of direct and second-order fallout from tariffs, but they are more likely to be able to find ways to maintain their strong growth trajectories notwithstanding. Indeed, says Chan, periods of market dislocation work in the team’s favour, in that they open up opportunities to take positions in robust, attractive companies that can improve the quality and yield potential of the portfolio. In this respect, one crucial stock-picking strength for the trust is the fact that Aberdeen’s investment teams are locally based across Asia and are familiar with the businesses they’re analysing. As Chan observes: “Our on-the-ground presence and extensive network of over 40 in-house analysts and fund managers across Asia provide us with valuable insights to identify and invest in quality companies, particularly during these volatile and uncertain times.” How successful has AAIF’s approach been? The turbulence of the past months makes it hard to draw meaningful comparisons over the shorter term, but investing in investment trusts requires a long-term perspective. On a five-year perspective to 23 April 2025, AAIF outperformed its peer group (Morningstar IT Asia Pacific Equity Income) in total return terms, achieving annualised NAV returns of 8.3% (peer group 7.8%) and annualised share price returns of 9.4% (peer group 8.7%). Rich pickings for income investors Asia remains a particularly fertile hunting ground for income-seekers, with dividends now accounting for more than 50% of total returns in the region; dividend growth in Asia, meanwhile, outpaces that in both the US and Europe. So, the goal for AAIF’s team is to find companies that not only provide capital growth but are also able to pay increasingly attractive dividends that will contribute to the portfolio’s rising income target. Indeed, AAIF’s board has recognised this focus on a consistent, growing income stream over time as a key investment consideration for the many private shareholders reliant on investment income. Enhanced dividend policy boost To that end, the board announced in January 2025 that AAIF is adopting a so-called enhanced dividend policy. This means it has committed to a regular annual dividend payment to shareholders, in AAIF’s case worth 6.25% of its average NAV. Given subsequent share price volatility, as at 31 March this translated into a notional dividend yield worth a competitive 7.7% for new investors. The move also cements the trust’s position as an AIC Next Generation Dividend Hero committed to rising dividends, with 16 consecutive years of payout increases under its belt. But the new dividend policy does not involve any change in the way the portfolio is run. The team continues to look for high-quality, cash-generative companies with strong management teams, at sensible valuations. Ultimately, despite the painful disruption suffered by investors globally in recent months, it remains the case that Asian markets offer attractive long-term investment opportunities, and that AAIF is strategically placed to cash in on them. Isaac Thong becomes lead manager of AAIF As Aberdeen Asian Income Fund heads towards its 20th birthday later in 2025, there’s new blood on the AAIF team, with the appointment of Isaac Thong as lead manager. Isaac, based in Singapore, replaces YooJeong Oh and will be working alongside portfolio manager Eric Chan. He has more than a decade of experience in Asian equity investment, most recently as an emerging markets portfolio manager at JPMorgan Asset Management. Ian Cadby, chair of the AAIF board, highlighted his “excellent track record” in Asian and emerging markets equities. “With Asia poised to drive global economic growth, Isaac’s expertise will be instrumental in navigating this dynamic landscape,” he added. Find out more at aberdeeninvestments.com/aaif With Asia poised to drive global economic growth, Isaac’s expertise will be instrumental in navigating this dynamic landscape. 17 Aberdeen Asian Income Fund
Tap into tax-efficient savings Louise Bouverat, Head of Investment Trust Promotion at Aberdeen For long-term investors - and anyone who makes use of investment trusts should be thinking in terms of at least five years, or ideally longer - one of the most important jumpingoff points in the investment process is to take advantage of any tax-efficient wrapper on offer. It’s a simple matter of improving returns by reducing the impact of tax on your investments, using the annual investment allowances available each tax year. Whether you’re looking at a self-invested personal pension (SIPP) for your retirement savings, an Individual Savings Account (ISA) for more accessible investments, or a Junior ISA for the youngsters in your life, the money you invest could grow over the years and you won’t have to pay any tax on the any growth or income generated by the money you invested. Tax relief variations SIPP investments enjoy an additional boost, in that your contributions (up to the annual limit) receive full tax relief - so there is more money available from the outset to put to work in the markets. For investors in ISAs (who have a £20,000 annual allowance) and Junior ISAs (£9,000 annual allowance), the benefit comes at the other end of the process, in that although contributions are from taxed income, withdrawals are completely free of income or capital gains tax. Indeed, whether you opt for a one-off lump sum withdrawal or a steady income stream – perhaps to supplement your pension – you don’t even have to declare the proceeds of an ISA on your tax return. Decades of tax-efficient growth These tax-efficient wrappers are a no-brainer from the outset, but they become more critical in protecting your investments as the decades pass and their value hopefully grows. To put that into perspective, let’s say you’re a basic rate taxpayer and you start investing into an investment trust held within an ISA. You make an initial contribution of £20,000 and then pay in £100 a month. Your money could grow by an average of 5% a year after all costs. After five years, there is only around £300 difference between the value of the tax-efficient ISA investment and its value if it had been held as a taxable account (£32,500 versus £32,200). After 20 years, however, the gap has broadened to around £8,000 (£95,000 versus £87,000). If you had become a higher rate taxpayer during that period, as you might well have done, the differential would be even wider, with reductions due to tax of up to around £20,000, depending on how long you were in the higher-rate bracket. If you’re in a position to open or contribute to a Junior ISA for a young child, the long-term benefits of investing in global stock markets through investment trusts become potentially even more significant. A Junior ISA cannot be accessed until the child is 18, but at that point it rolls over to become an adult ISA that they could put towards buying a car, pay university fees or even put a deposit down on a first home: a valuable nest egg at precisely the time of life when it’s most needed. And if it’s not used at that time, it can carry on being invested for tax-free growth, through the decades. 18 The Bulletin | Issue 38 Summer 2025
A robust investment option For many adult investors, of course, one of the most rewarding ways to utilise their tax-free allowances is by drawing an income after retirement, using an equity income investment trust that aims to provide both capital growth and some dividend income. But even if you’re still very much mid-career, equity incomefocused trusts are a popular choice for a well-balanced portfolio - and with good reason. First, they tend to be rather less volatile in challenging times, because the managers seek out more established, resilient businesses that can use their earnings to pay decent dividends to shareholders (rather than having to prioritise growth and reinvestment). And secondly, those dividend payouts mean investors usually receive some compensation, even when times are tough and share prices have fallen, although of course as with any form of investing the income is not guaranteed. Aberdeen’s UK equity income choices Aberdeen’s stable of equity income-focused investment trusts includes several with a UK mandate, each with its own specific approach. Aberdeen Equity Income Trust focuses on the team’s best ideas from across the full spectrum of UK companies, large, medium and small. They seek undervalued companies that aim to deliver on their dividend promises, grow those payouts over time, and potentially see a valuation rerating as other investors recognise their attractions. Murray Income Trust’s team look for high-quality dividendpaying companies. Up to 20% of the portfolio can be invested overseas, providing additional diversification for risk-averse investors. For investors keen to take the sustainable route, the team of Dunedin Income Growth Investment Trust seek out dividend-paying UK companies that meet its responsible investing criteria. Finally, Shires Income aims for a high income, plus potential for growth of both income and capital, complementing its UK equity portfolio with holdings of fixed income securities. Each one has different qualities and will suit different investors, but if you’re planning to use this year’s investment allowances with an eye to the long term, Aberdeen’s range of UK equity income trusts could be a good place to start. Remember of course that tax rules can change, and the tax benefits described above may depend on your personal circumstances. Find out more at invtrusts.co.uk/how-to-invest 19 Tax-efficient savings
US President Donald Trump’s “reciprocal” tariffs have shaken up the foundations of global trade, even with a temporary postponement to give countries time to renegotiate trade terms with the United States. India was not spared, with the Trump administration announcing a 26% reciprocal tariff rate on Indian exports to the U.S. However, that came with a few caveats. Trump, trade and tariffs – relooking at US-India relations Rita Tahilramani, Co-Manager, abrdn New India Investment Trust plc 20 The Bulletin | Issue 38 Summer 2025
First, two high-ticket Indian exports were left untouched: IT Services, which does not fall under goods-specific imports, and second, pharmaceutical products, which are not discretionary in nature, were for the time being put on an exempted list of sectors. The direct impact from tariffs would likely be limited on India, considering about 80% of the Indian economy is domestic oriented. Plus, tariffs are expected to bite the hardest around US discretionary spending, where India does not have a significant enough presence to be materially affected. Moreover, Indian goods exports to the US comprise just 2% of India’s GDP. However, India could be affected by second-order impact in several ways. First, a potential weakening of the US environment over time due to the tariffs could affect corporate decisions around IT spending. This, in turn, could potentially translate into a mediumterm impact on Indian IT Services. In addition, India is not immune to the supply chain disruptions that are likely to be caused by these tariffs should they go into effect at the end of the negotiation period. India’s long-established strategic ties with the United States have endured plenty, from the Cold Warera distrust to estrangement over India’s nuclear programme. More recently, however, the US has pushed for strategic cooperation between the two countries across a wide spectrum, from economy to trade, from technology to defence, and more. Bilateral trade agreement Earlier this year, Prime Minister Narendra Modi met with President Trump at the White House. The two countries subsequently announced plans to more than double the US-India bilateral trade from an estimated US$130 billion in 2024 to US$500 billion by 2030. Negotiations are also ongoing for a bilateral trade agreement covering a wide range of issues, including deepening supply chain integration. India’s strategic value to the US could manifest in other ways too, including more US foreign direct investments into India, better market access to the US, and lower tariffs on Indian exports to the United States. Hence, we think India should be able to safely navigate the tariffs through negotiation instead of any tit-for-tat measures. While sentiment is likely to remain negative in the near term, we would expect this to be mitigated as the macro picture improves. The Indian government and the central bank are taking steps to address the recent weakness in the economy whilst the corporate sector remains relatively healthy. The risk lies in two areas first, a potential US recession could trigger a global economic downturn. Second, India could potentially get caught in the crossfire of an international trade war if the reciprocal tariffs do tariffs are expected to bite the hardest around US discretionary spending, where India does not have a significant enough presence to be materially affected. Moreover, Indian goods exports to the US comprise just 2% of India’s GDP. go into effect. In such instances, we would expect domestic-focused quality companies to do better and for our portfolio’s downside to be well protected. Find out more at aberdeeninvestments.com/anii 21 Postcard from India
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