The Aberdeen investment approach – an eye for potential, an ear to the ground

Multi asset investing has evolved considerably since the Global Financial Crisis. Today’s investors are looking for a more explicit focus on their own objectives – such as a cash or RPI+ return; or maybe a consistent level of income.  In the past a simple blend of stocks and bonds may have delivered decent returns, but not without significant volatility.  Looking forward, historically low bond yields and challenging equity markets mean that even the returns achieved in the past look unlikely to be delivered in the future.

Multi asset managers have responded in one of three ways:

  • Some make more use of derivatives to hedge out market risk and replace it with various trades focused on strategies such as market momentum and relative value. idiosyncratic alpha trades. 
  • Some have become more aggressive in their approach to market timing, trying to sell equities at the top and buy them back when they are cheap.  Both approaches can work, but their success can be episodic and they are very dependent on manager skill.
  • The third approach – and the core to our philosophy – is to make fuller use of diversification.

Our core belief is that there are a number of asset classes with attractive return prospects but different return drivers. We believe that combining these asset classes in a diversified portfolio results in the attractive returns coming through in a much more consistent fashion than any one asset class in isolation.  This approach is very transparent and does not rely on complex derivatives trades or our ability to trade in and out of markets over short-term horizons. This makes the approach easy to understand and robust to differing market conditions.

A key aspect of delivering on this core philosophy is our ability to identify and access a broad range of asset classes. This is driven by the breadth and depth of resources we have across a range of investment specialisms.  There are also many more asset classes available today - providing more opportunities to generate returns, reducing reliance on anyone asset class and benefiting from a lower expected volatility portfolio that can better navigate market turbulence.

Illustrative portfolio

Source: Aberdeen Diversified Income & Growth Trust plc prospectus, Mar 2017. Asset allocations are subject to change.

Aberdeen Diversified Income & Growth Trust plc (ADIG) is able to use its permanent capital structure to access longer term investments which may deliver robust risk-adjusted returns.  In a number of cases, these are managed by specialist teams within the Alternatives division at Aberdeen and are not accessed by open-ended vehicles, which typically require daily liquidity in order to meet potential investor redemptions.  As a result, ADIG is able to target an attractive return – Libor + 5.5% per annum net of fees over rolling five year periods – for shareholders.

Our approach is to seek out fundamentally attractive long-term investments‎, steadily evolving the asset mix to leave us best positioned for the future. Given the current market environment, our portfolio may have allocations across equities, property, infrastructure, high yield, loans, asset backed securities, absolute return strategies, insurance-linked and other special opportunities, as illustrated above. The world's largest investors don't rely simply on equities and bonds - smaller investors shouldn't have to either.