Twitter icon Email alerts icon Latest News RSS icon Magazine icon Stay connected:

View the article online at http://citywire.co.uk/wealth-manager/article/a634559

Investment Trust Insider: Aberforth Geared Income's recovery play

by James Carthew on Nov 20, 2012 at 00:01

Investment Trust Insider: Aberforth Geared Income's recovery play

When writing about Henderson High Income last week I mentioned one of the best performing funds in 2012 (in net asset value terms) has been Aberforth Geared Income – up about 40% year to date.

Its share price, though, is only 102p – marginally ahead of its launch price. As the numbers suggest, Aberforth Geared Income’s performance in its first couple of years has been something of a roller coaster ride, smoothed somewhat by quite a healthy yield.

Volatile discount

The ordinary shares are trading on a discount of more than 10%. The discount has been volatile, trading at asset value and almost out to 15% over the past year. The current discount is not too dissimilar from other competing funds however.

As in other sectors, the UK small cap high income funds trade on a tighter rating than the average UK small cap fund.

Aberforth Geared Income is a split capital trust consisting of ordinary shares and zero dividend preference shares in a ratio of 6:4. It can use bank borrowings but these are limited to 5% of gross assets and gearing will not figure much in the structure.

The trust was formed in April 2010, raising £75 million from investors. In the summer of 2011, it was used as a rollover vehicle for Aberforth Geared Capital & Income Trust and this expanded the trust considerably. It is now a decent size; the ordinary shares have a market cap of £112 million and the zeros £96 million.

Aberforth Geared Income has to repay the zeros on 30 June 2017 and, in theory, the company will wind up after this date, but shareholders should expect Aberforth to try to roll over the assets again nearer the time. The ordinary shares are geared about 1.7 times and will get back at least the money they invested if the assets grow by 3.9% per annum from launch – this is the hurdle rate.

The redemption yield on the zeros was 6.75% at launch and it is now 4.2%. The management fees are slightly unusual. There is no performance fee but the base fee is set at £60,000 (adjusted by RPI from launch) plus 1% of net assets (after deducting the zeros) plus 5% of income. This latter clause gives them some incentive to maximise income generation.

I am surprised that Aberforth Geared Income does not pay quarterly dividends. Instead the board has opted to pay semi-annual dividends in February and August. The trust’s year-end is 30 June. In the first year, it managed an annualised dividend of 5.66p and targeted at least 6p for the second year but managed to pay 6.4p. Aberforth reckons its portfolio should generate 6% per annum dividend growth over the next couple of years.

Sign in / register to view full article on one page

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

Sponsored Video: Bringing it all back home


As the UK coalition government strives to rebalance the national economy, so called 'reshoring' looks set to play an increasingly important role in economic recovery.

Today's top headlines

The Citywire guide to investment trusts

Investment trusts have proved to be a highly effective way to invest in the market. Citywire has interviewed the experts to find out more.

Sponsored Video: Barings on investing in Frontier Markets


From Nigeria to Pakistan and from Kenya to Kuwait, frontier markets are catching investors' attention as never before.

More about this:

Look up the shares

  • Henderson High Income Trust PLC
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the investment trusts

  • Aberforth Geared Income (Ord Income)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Aberforth Geared Income (ZDP 2017)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

More from us

Archive

On the road

Click here to find out more from the Audience Development team.

Sorry, this link is not
quite ready yet