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Attractive income from listed alternative investments


April 2021


Tony Foster, Investment Director with the Diversified Assets team, retires in April 2021. He looks back at some of the turning points in his fund management career. He also discusses how investors seeking income can turn to listed alternative investment companies for access to a wide range of asset classes.

Scotland 1, Brazil 1

As I look back on a career in fund management that has spanned five decades, that moment was one of the most memorable. The Scottish football team had just equalised against the mighty Brazil. In the opening match of the France 1998 World Cup. And I was there. As a guest of Lehman Brothers. “Wow,” I thought, “Can it get any better than this?”

It couldn’t. Over the next two decades, I witnessed history being made on numerous occasions. But not, sadly, on 10 June 1998. Despite playing out of their skins, Scotland went on to lose 2-1 after conceding the softest of own-goals.

A decade later, Lehman Brothers collapsed. The global financial crisis and events that followed were simply unthinkable when I started out as a trainee investment analyst. Quantitative easing; negative interest rates; the demise of Northern Rock; the ‘merger’ between Lloyds TSB and HBOS. These events helped shape the final third of my career as I abandoned UK equities in favour of multi-asset investing.

“When you come to a fork in the road, take it.”

Every five years or so throughout my career, I’ve had the opportunity to follow Yogi Berra’s sage advice. I’ve managed diversified growth funds, a fund-of-funds, a long-short UK equity fund, £15 billion of UK life assurance funds, UK equity funds and Asian equity funds. Some of these roads have been bumpier than others.

In 2000, for example, I joined Scottish Widows to help build their new fund management business, SWIP. Frustratingly, although I worked alongside a plethora of talented fund managers, the whole was always less than the sum of the parts. SWIP had largely abandoned active equity management before its take-over by Aberdeen Asset Management in 2014. However, I was able to survive the chop on both occasions because of a fork in the road I’d taken earlier.

During the integration of the HBOS funds business, I volunteered to manage the Halifax Fund of Investment Trusts. I had previously managed portions of three investment trusts and was familiar with the associated governance aspects. This made me the natural choice for a fund considered a niche offering.

Investment trusts have long been viewed as the Cinderellas of the investment world - even though they offer investors a simple and cost-effective way to hold a diversified portfolio of assets. The Halifax fund was the largest of its type. So, over the next seven years, I learned a huge amount from my investments with many high-profile trust managers.

The most successful investment trusts were those offering a differentiated investment proposition, as well as good performance. Yields fell precipitately after the financial crisis, so funds that provided access to new types of investment and a high level of income became increasingly popular.

One of the pioneers was social infrastructure company, HICL. It raised £250 million when it floated in 2006 to acquire an initial portfolio of seventeen schools, hospitals and other facilities for government entities on multi-year Public Finance Initiative contracts.

Today, listed investment companies offer exposure to a wide variety of alternative asset classes. Music royalties, battery storage, various forms of renewable energy, shipping, litigation finance, social housing, student accommodation and healthcare royalties feature in many multi-asset portfolios. In order to access these asset classes, wealth managers have become increasingly important players in the world of listed investment companies, displacing larger institutional investors who mostly abandoned the sector in the 1980s.

Listed investment companies offer exposure to a wide variety of alternative asset classes including music royalties, battery storage, renewable energy and shipping.

Institutions and endowment funds have instead turned towards private market investments, seeking an attractive risk premium by tying up their capital for years or even decades. As co-manager of Aberdeen Diversified Income & Growth Trust (ADIG), I worked with private markets specialists at Aberdeen Standard Investments and elsewhere, to source the widest range of investments for the trust. Areas like agricultural farmland, Latin American infrastructure and litigation finance investments are assets that cannot be accessed directly by ADIG’s shareholders.

One such infrastructure investment, the Optus Stadium in Perth, Western Australia, may even feature in my retirement plans (Covid allowing) when it hosts an Ashes cricket match at the end of the year.

If I do make it to the 2021-22 Ashes, it won’t of course be as a guest of Lehman Brothers (or indeed, any other stockbroker). The days are long gone when fund managers claimed to be ‘on a course’ while, in fact, enjoying corporate hospitality at Cheltenham races or golfing at Gleneagles. Today, the courses attended by fund managers are mostly on money laundering or the finer points of MIFID II.

The investment world has changed enormously since September 1988, when I was issued with red and green ballpoint pens to annotate my handwritten analysis of company accounts. In one sense, I became a fintech pioneer, developing the first spreadsheet at Baillie Gifford to make this task more efficient (the firm had just three personal computers for an office of 80 people).

Who knows how the investment world may change over the next thirty years. But two things are likely to stay constant. First, savers and investors will continue to seek an attractive income from their investments, inflation-linked if possible. Second, I suspect investors will still seek a diversified multi-asset portfolio with the aim of targeting attractive long-term returns, and with relatively low volatility.

Important information

Risk factors you should consider prior to investing:

  • The value of investments and the income from them can fall and investors may get back less than the amount invested.
  • Past performance is not a guide to future results.
  • Investment in the Company may not be appropriate for investors who plan to withdraw their money within 5 years.
  • The Company may borrow to finance further investment (gearing). The use of gearing is likely to lead to volatility in the Net Asset Value (NAV) meaning that any movement in the value of the company’s assets will result in a magnified movement in the NAV.
  • The Company may accumulate investment positions which represent more than normal trading volumes which may make it difficult to realise investments and may lead to volatility in the market price of the Company’s shares.
  • The Company may charge expenses to capital which may erode the capital value of the investment.
  • Derivatives may be used, subject to restrictions set out for the Company, in order to manage risk and generate income. The market in derivatives can be volatile and there is a higher than average risk of loss.
  • There is no guarantee that the market price of the Company’s shares will fully reflect their underlying Net Asset Value.
  • As with all stock exchange investments the value of the Company’s shares purchased will immediately fall by the difference between the buying and selling prices, the bid-offer spread. If trading volumes fall, the bid-offer spread can widen.
  • Certain trusts may seek to invest in higher yielding securities such as bonds, which are subject to credit risk, market price risk and interest rate risk. Unlike income from a single bond, the level of income from an investment trust is not fixed and may fluctuate.
  • Yields are estimated figures and may fluctuate, there are no guarantees that future dividends will match or exceed historic dividends and certain investors may be subject to further tax on dividends.

    Other important information:

    Issued by Aberdeen Asset Managers Limited which is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Registered Office: 10 Queen’s Terrace, Aberdeen AB10 1XL. Registered in Scotland No. 108419. An investment trust should be considered only as part of a balanced portfolio. Under no circumstances should this information be considered as an offer or solicitation to deal in investments.

    Investors should review the relevant Key Information Document (KID) and brochure prior to making an investment decision. These can be obtained free of charge from or by writing to Aberdeen Fund Managers Limited, PO Box 9029, Chelmsford, CM99 2WJ.

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Risk Warning
Risk warning
The value of investments and the income from them can go down as well as up and you may get back less than the amount invested. Please refer to the relevant Key Information Document (KID) prior to making an investment decision. Please be aware of scams that can affect investors.