Aberdeen and BlackRock trusts to merge

Aberdeen and BlackRock trusts to merge

The board of the £281m BlackRock Income Strategies trust has proposed for Aberdeen to take over the management of the company and merge it with another vehicle.

The board has suggested appointing Aberdeen multi-asset managers Mike Brooks and Tony Foster as lead portfolio managers, as well as "significantly enlarging" the trust's assets by merging it with the £318m Aberdeen UK Tracker Trust.

The vehicle, which would be renamed as the Aberdeen Diversified Income and Growth Trust, would look to target returns of Libor plus 5.5 per cent a year, net of fees, over rolling five-year periods.

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Its dividend policy would also be revised, with current holders facing a cut, a move which "recognises the current low yield environment".

The proposals follow a strategic review by the board, begun in August, in which it said it was reviewing the trust’s investment objective, citing lower interest rates as well as "prevailing market conditions and investment outlook". It followed a period of underperformance from current manager Adam Ryan and team.

The review came just 18 months after BlackRock had replaced F&C as the manager of the trust, formerly called British Assets, in February 2015, moving it from a UK equity mandate to a multi-asset strategy.

The trust currently aims to achieve a total return of CPI inflation plus 4 per cent each year over the medium term, as well as preserving capital in real terms and growing its dividend at least in line with inflation.

A new investment policy has also been proposed, targeting a "truly diversified multi-asset approach to generating highly attractive long-term income and capital returns".

The new trust would focus on delivering greater capital stability over the medium term than a long-only equity strategy and volatility significantly less than that of equities.

In an update on the proposals, the trust's board justified the choice of Aberdeen to manage the fund by citing the breadth and depth of resources of the team, their track record, the fund house's commitment to the management of closed-ended vehicles and the competitive cost level at which services would be provided.

Aberdeen will take the reins upon termination of the trust's existing agreement with BlackRock, with an announcement of the date expected in January next year. Aberdeen is to be paid an annual management fee of 0.5 per cent on net assets up to £300m and 0.45 per cent on net assets above this level.

BlackRock currently charges a fee of 0.4 per cent on gross assets.

A general meeting to gain necessary shareholder approvals for the proposals is to be held in March 2017.