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Meeting today's global challenges
Ten years isn't that long ago, but in terms of the world's economic and technological
environment it's an eternity. Back in 2008 Lehman Brothers, the prominent but
highly leveraged U.S. investment bank, filed for what would become the largest
bankruptcy proceeding in history at the time. Stock markets around the world
began a dizzying descent. In a foreshadowing of things to come in other countries,
the foundations of the Iceland banking system began to crumble. And Twitter was in
its infancy.
Today, it's a very different picture. Many stock markets have climbed to historic or
near-historic highs. Low interest rates have stimulated global economic growth,
which is stronger than it's been in a decade. In the U.S., corporate earnings are up
well into double digits over the previous year, while tax revenues have risen at a
healthy clip. Iceland has become a tourist Mecca with a sound financial system. And
Twitter is a widely used platform for politicians, celebrities, and just about anyone
with an opinion.
Looking ahead
In some ways the macroeconomic challenges of today are similar to those of a
decade earlier, and in others they are very different. For investors, a number of key
areas bear watching.
Trade and tariffs. A series of tariffs from the Trump administration has had an
unsettling effect on stock markets around the world, and the ultimate effects have
yet to be determined. In July and August, the beginnings of what could erupt into a
trade war began when the U.S. levied a 25 percent tariff on a total of $50 billion of
Chinese goods. In each instance, China responded with tariffs on U.S. goods.
President Trump has recently threatened imposing tariffs on European goods as
well, which could also prompt retaliatory measures.
"In a global economy with interconnected supply chains free trade is crucial," says
Josh Duitz, who manages the Aberdeen Total Dynamic Dividend Fund (AOD). "At the
same time, we see any volatility resulting from trade or other issues as an
opportunity to add to positions in companies that have the long-term ability to
thrive."
Flattening yield curve. In the U.S., the Federal Reserve is starting to raise short-
term interest rates at a time when long-term bond rates are falling, resulting in a
flattening of the yield curve. At times in the past when a yield curve has gone from
flat to inverted, a recession has followed. That doesn't necessarily spell trouble,
though. "Flat yield curves can last for years, so we may still have quite a bit of
economic growth ahead," says Duitz.
Political uncertainty. Investors are keeping a close eye on the mid-term elections
in the U.S., and the results will undoubtedly affect future tax and spending policies.
Latin America has several key upcoming elections, and in Europe Brexit remains a
longer-term threat to economic growth. Political risk remains high in Spain and Italy
as well.
Currency shifts. Rising short-term interest rates in the U.S., along with trade
tensions, could strengthen the dollar against other currencies. This has both positive
and negative effects. Because U.S. dollar credit for non-bank emerging market
borrowers has roughly doubled since 2008, a stronger dollar exposes emerging
markets to greater risk. On the other hand, a rise in the greenback against other
currencies benefits foreign companies with substantial U.S. sales.
An active strategy for volatile times
No one can predict what next year will bring, let alone the next decade. But by
investing in companies with strong cash flow, leading market positions, and
sustainable competitive advantages Duitz and his team of 180 analysts around the
world assemble a portfolio designed to power through market turbulence and
succeed over the long-term. Key elements of this active strategy include:
Global exposure. Because the fund invests globally, it provides exposure to
countries that are often underrepresented in U.S. portfolios. "While the U.S. is still a
powerful force on the world economic scene, its dominance in terms of growth is
clearly waning, " he says. "In 1960 the U.S. economy accounted for 40 percent of
global GDP. Today, that number is less than 25 percent." He adds that because the
U.S. stock market has had a stronger upward trajectory over the last five years than
other markets valuations on foreign stocks are more reasonable.
In addition to providing investors exposure to rapidly growing economies, global
diversification is a proven way to "steady the ship" by balancing the ebbs and flows
of various markets. Even in a world where global trade has created an entrenched
network of ties between world economies, stock markets in different regions and
countries have unique political and economic drivers that often distinguish their
market performance from one another.
Strong and sustainable dividends. Investing in companies with strong and
sustainable dividends, a centerpiece of the fund's strategy, has historically proven to
be a good way to both achieve growth and moderate portfolio volatility over the
long-term. On average, dividend yields in Europe and other regions are at least
twice as high as they are in the U.S. These high yields get a boost through dividend
capture strategies, as well as a focus on stocks that are poised to declare special
dividends as a result of unique, one-time events.
Good ESG practices. Aberdeen gives preference to companies with strong
environmental, social, and governance (ESG) criteria. This ESG assessment reveals
critical information about a company's values and practices, as well as potential
risks for investors. Environmental risks consider a company's energy consumption,
waste disposal, land development, carbon footprint, and other areas. Social factors
deal with a company's relationship with its employees and vendors, and includes
issues such as employee health and well being and supplier relationships. Corporate
governance considerations include the decision-making structure, board
independence, and executive compensation.
Long-term investment "themes." Companies in the portfolio are also well
positioned to capitalize on changing demographics, new technologies,
infrastructure, and other rising investment themes that will affect industries and
companies for many years to come. The growing need for infrastructure spending
will be a dominant force for decades. Changes in the health care landscape brought
by shifting demographics are likely to benefit insurers, hospitals, technology
services, and other types of companies that can contain costs and provide essential
services. And the evolution of technology will make its mark on the world scene.
From online banking and shopping to the "Internet of Things," the need for
technology companies that can facilitate transactions, topple old ways of doing
things, and change our daily lives will continue.
The stocks selected for the portfolio reflect many of these investment themes. To
qualify for inclusion, they must have strong, sustainable dividends and cash flow,
solid balance sheets, and attractive stock valuations. In Europe, companies such as
Ferrovial, a multinational construction company, are well-positioned to meet the
critical need to build and improve bridges, roads, airports, and public facilities
around the world. In the United States, where the Aberdeen Total Dynamic
Dividend Fund has over half its assets, technology leaders such as Broadcom, which
has a dividend yield of over 3 percent, are set to lead change in the U.S. and abroad.
Taken together, the key elements of Aberdeen Total Dynamic Dividend Fund's active
management style provide a path toward market-beating performance over the long
term and an element of downside protection when markets are shifting gears.
"Qualities such as structural growth drivers, a sustainable competitive advantage,
and a strong market position are fundamental factors that give companies the
resilience to navigate more difficult times should the macroeconomic risks
materialize," says Duitz.
IMPORTANT INFORMATION
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
Aberdeen Standard Investments is a brand of the investment businesses of
Aberdeen Asset Management and Standard Life Investments.
Closed-end funds are traded on the secondary market through one of the stock
exchanges. The Fund's investment return and principal value will fluctuate so that an
investor's shares may be worth more or less than the original cost. Shares of closed-
end funds may trade above (a premium) or below (a discount) the net asset value
(NAV) of the Fund. The net asset value (NAV) is the value of an entity's assets less the
value of its liabilities. The market price is the current price at which an asset can be
bought or sold. There is no assurance that the Fund will achieve its investment
objective. Past performance does not guarantee future results.
Under U.S. tax rules applicable to the Fund, the amount and character of
distributable income for each fiscal year can be finally determined only as of the end
of the Fund's fiscal year. The Fund anticipates that sources of distributions to
shareholders may include net investment income, net realized short-term capital
gains, net realized long-term capital gains and return of capital. The estimated
composition of the distributions may vary from time to time because the estimated
composition may be impacted by future income, expenses and realized gains and
losses on securities. For more detailed information related to the composition of the
Fund's distributions, see aberdeenAOD.com.
Foreign securities are more volatile, harder to price and less liquid than U.S.
securities. They are subject to different accounting and regulatory standards, as well
as political and economic risks. These risks are enhanced in emerging markets
countries. Equity stocks of small and mid-cap companies carry greater risk, and
more volatility than equity stocks of larger, more established companies.
Diversification does not ensure a profit or protect against a loss in a declining market.
Commentary contained within this document is for informational purposes only,
and is not intended as an offer or recommendation with respect to the purchase or
sale of any security, option, future or other derivatives in such securities. Some of
the information in this document may contain projections or other forward-looking
statements regarding future events or future financial performance of countries,
markets or companies. These statements are only predictions and actual events or
results may differ materially. The reader must make his/ her own assessment of the
relevance, accuracy and adequacy of the information contained in this document,
and make such independent investigations, as he/she may consider necessary or
appropriate for the purpose of such assessment.
Any opinion or estimate contained in this document is made on a general basis and
is not to be relied on by the reader as advice. Neither AAM nor any of its agents have
given any consideration to nor have they made any investigation of the investment
objectives, financial situation or particular need of the reader, any specific person or
group of persons. Accordingly, no warranty whatsoever is given and no liability
whatsoever is accepted for any loss arising whether directly or indirectly as a result
of the reader, any person or group of persons acting on any information, opinion or
estimate contained in this document.
© 2018 This material is owned by Standard Life Aberdeen or one of its affiliates.
NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE
US-130918-72393-1
Important information
Effective the close of business May 4, 2018, Aberdeen began managing the Aberdeen Total Dynamic Dividend Fund, which until May 7, 2018 was known as the Alpine Total Dynamic Dividend Fund. Performance information for periods prior to May 4, 2018 reflects performance of a prior, unaffiliated investment manager.
As of close of regular business on April 27, 2018, the reorganization of seven closed-end funds into the Aberdeen Chile Fund, Inc. (CH) was successfully completed. CH changed its name, ticker symbol, benchmark, investment objective and strategy effective April 30, 2018. Aberdeen Latin American Equity Fund, Inc. is the performance and accounting survivor for AEF. Performance information for periods prior to April 30, 2018 do not reflect the current investment strategy.
Disclaimer – Aberdeen Emerging Markets Equity Income Fund
Pursuant to valuation policies adopted by the Board of Directors of the Fund, the Fund values foreign equity securities that primarily trade in certain markets that close ahead of the Fund’s daily 4:00 pm Eastern net asset value (“NAVâ€) calculation time at their fair values using prices provided by third-party independent pricing services. The fair value of each such security generally is calculated by applying a valuation factor provided by the independent pricing service to the last sales price for that security, or, if, the pricing service is unable to provide a fair value for a security, at the price at the close of the exchange on which it is principally traded, subject to adjustment by the Fund’s Pricing Committee. These daily fair valuations seek to reflect information available after the local market close that may affect the value of the foreign equity securities held by the Fund. As a result, this official NAV calculation reflects adjustments that may cause it to vary from a calculation based solely on closing prices. In contrast, the “Unadjusted NAV†of the Fund (shown above) is for informational purposes only and is computed using the closing prices on the relevant exchange. It does not reflect any daily fair valuation adjustments of the Fund’s foreign securities. The Unadjusted NAV does not represent the official NAV of the Fund, nor is the Unadjusted NAV used for Fund accounting or performance purposes. Investors should not rely upon the Unadjusted NAV when making their investment decisions.
Closed-end funds are traded on the secondary market through one of the stock exchanges. The Fund’s investment return and principal value will fluctuate so that an investor’s shares may be worth more or less than the original cost. Shares of closed-end funds may trade above (a premium) or below (a discount) the net asset value (NAV) of the fund’s portfolio. There is no assurance that the Fund will achieve its investment objective. Past performance does not guarantee future results.
Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks are enhanced in emerging markets countries.
Equity stocks of small and mid-cap companies carry greater risk, and more volatility than equity stocks of larger, more established companies.
The use of leverage will also increase market exposure and magnify risk.
Dividends are not guaranteed and a company’s future ability to pay dividends may be limited.
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Business Continuity Management & Disaster Recovery Programs
There can be no assurance that the Board will maintain the Fund's distribution rate at a particular level, or that the Board will continue a managed distribution policy. Additionally, distributions may include return of capital as well as net investment income and capital gains. If the Fund's investments do not generate sufficient income, the Fund may be required to liquidate a portion of its portfolio to fund these distributions. If the Fund's distributions consist of a large amount of return of capital, it may result in a deterioration of the Fund's assets.
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