Aberdeen UK Tracker Trust and BlackRock Income Strategies Trust are set to merge, they said in November 30 statements.
The resulting trust will be managed by Aberdeen’s diversified multi-asset team led by Mike Brooks and Tony Foster. It will be known as the Aberdeen Diversified Income and Growth Trust.
It’s a “significant development” for Aberdeen Asset Management’s closed-ended fund business and multi-asset offering, chief executive Martin Gilbert said in a statement.
Aberdeen already managed 19 UK-listed closed-end funds and had £90 billion of assets under management within multi-asset portfolios.
“This appointment will take our diversified multi-asset offering to over £1 billion and we continue to be encouraged by strong interest from institutions and consultants,” Gilbert said.
The Aberdeen Diversified Income and Growth Trust will be able to make investments across equities, property, social and renewable infrastructure, emerging market bonds, loans, asset-backed securities, insurance linked securities, private equity, farmland and aircraft leasing.
The enlarged trust will aim to generate long-term income and capital returns with lower volatility than equity markets. Specifically, it will aim to generate returns of Libor plus 5.5% per annum net of fees over rolling five-year periods and a quarterly dividend.
An annual management fee of 50 basis points will be due to Aberdeen on net assets of up to £300 million, falling to 45bps on net assets above that threshold.
A board review by Aberdeen UK Tracker Trust found that investors looking to gain exposure to a liquid UK equity index typically preferred to use exchange-traded funds, passive vehicles that do not try to beat the returns of an index and are attractive because of their lower ongoing charges.
Aberdeen UK Tracker Trust said the falling demand for an index tracking mandate in closed-ended form meant its shares were persistently found to trade below the net asset value of the trust.
James Long, chairman of BlackRock Income Strategies Trust, said the board was “disappointed” with performance for shareholders over the past 19 months.
“The negative absolute returns delivered, coupled with our concerns over the sustainability of the dividend in the current low yield environment, led us to initiate the strategic review that we have now concluded,” Long said.
The merger is subject to shareholder approval.