Update on merger of Aberdeen UK Tracker (AUKT) and Aberdeen Diversified Income and Growth Trust (ADIG)

IpsoFacto Investor Aberdeen

Introduction

AUKT is being merged with ADIG. AUKT shareholders can elect (1) to cash out (tender) their shares at a price representing a 2.75% discount to net asset value (NAV) (but if more than 60% of shareholders choose to do this, then the cash out will be limited to 60% of shares held, with the balance rolling over into ADIG shares); or (2) rollover all their shares into ADIG or (3) some combination of cash and new shares in ADIG.

ADIG shareholders can elect to cash out (tender) their shares at a discount of 4% of NAV less costs of the merger; but here the cash out is limited to 20% of shareholders, so the likelihood of being scaled back is much greater – although it may apply in both cases.

The investment objective of ADIG is changing: it will target a total portfolio return of LIBOR (an interest rate derived from London Interbank Offered Rate, roughly equivalent to base rate) plus 5.5 per cent. per annum (net of fees) over rolling five year periods. The Company’s portfolio will include (but will not be limited to) equity driven assets (being developed equity, emerging market equity and private equity), alternative diversifying assets (including, but not limited to, high yield bonds and loans, emerging market debt, alternative financing, asset backed securities, property, social, economic, regulated and renewable infrastructure, commodities, absolute return investments, insurance linked, farmland and aircraft leasing) and low return assets such as gold, government bonds, investment grade credit and tail risk hedging. Obviously this is quite different to AUKT which was a tracker of the FTSE All Share, with therefore just an exposure to UK equities.

The latest dates for receipt of the forms of election are 27th March (AUKT) and 28th March (ADIG). However, investing platforms will require the forms to be sent to them before these dates, so you may need to take action urgently, if you want to elect for cash. If you don’t return the forms, then as an AUKT shareholder you will be rolled over into new ADIG shares. Note forms can usually be emailed as attachments as well as sent in the post.

 

IpsoFacto Investor Portfolios

We hold AUKT in our mainstream investment trust portfolio. Here we will elect for cash for 100% of the shares (although we may be able to sell only 60% of them). Cash proceeds in the short term will be invested in the iShares FTSE 100 ETF (ISF).

We hold ADIG in our Income and Top Five Investment Trust portfolios. Here we will tender 100% again – although the likelihood is we will be limited to a 20% sale. We will let you know the likely replacement in our next newsletter issue on 3rd April.

We also hold ADIG in our Managed Income Portfolio. Here we will only tender 50%; the reason for the difference is that Managed Income is meant to be a balanced portfolio where we are happy to hold some exposure to a trust with ADIG’s new investment mandate. ADIG was in the other portfolios mainly to exploit what was a relatively wide discount.

 

Considerations for Investors

A) General

  1. As a AUKT shareholder your exposure will effectively change on 29th March – so that it will no longer be pure exposure to UK equities, but at that point a mixture of cash and equities. The NAV calculation will be made as of 4th April. In effect this should make little difference since we are only talking about four working days.
  2. Smaller shareholders who want to take cash should check the cost for corporate actions levied by their investment platform and make sure that it would not be more economic to simply sell the shares in the market before the reconstruction (but see capital gains tax (CGT) below.)

B) Capital Gains Tax

  1. SIPP and ISA investors are not affected but if you hold your shares (either AUKT or ADIG) outside one of these tax wrappers, bear in mind that any shares you tender for cash (or sell in the market) will trigger a CGT event.
  2. We have checked with Aberdeen and the effective date for CGT (if you tender the shares for cash) will be 6th April, so in the next tax year (17/18).
  3. If you still have capacity within the current tax year (16/17) to use up your annual CGT allowance of £11,100 always assuming you have a gain, then again if you intend to elect for cash, you may want to consider selling shares in the market now instead, so as to avoid using up some of next year’s allowance.As always if you do have any questions, do please use the Contact Page on the Website and we will come back to you as soon as possible.

     
    This research has been produced by David Liddell, chief executive and major shareholder in IpsoFacto investor.com Limited which has approved this research. David may have equity holdings in any or all of the stocks listed.
    The information contained in this research has been obtained from sources that IpsoFacto investor.com Limited believes to be reliable and accurate. However, it has not been independently verified and no representation or warranty, express or implied, is made as to the accuracy or completeness of any information obtained from third parties.