It’s good to see Standard Life Aberdeen (SLA), the £670 billion fund management giant, choose an investment trust for its first product launch since the two firms merged earlier this year. Better still, it’s a brilliant idea.
While most funds that aim to gain from newish technology promise growth tomorrow but deliver little or no income today, SLA’s new trust might do both with a target yield of 5.5% and total returns of 7.5% per annum.
The new trust, Aberdeen Standard European Logistics Income (ASELI), will operate ‘big box’ warehouses and the ‘final mile’ infrastructure needed to deliver all that stuff we buy online.
This may sound like a dull way to get exposure to an exciting revolution in the way we spend our time and money. However, while Amazon shares are priced at 301 times corporate earnings and its Chinese rival Tencent trades on a price/earnings ratio of 62, the chance to get into this game at par looks more appealing.
Against that, potential subscribers at issue should always beware the risk they may pay more than the shares subsequently fetch on the open market. This is less of a problem now the rising popularity of investment trusts has depressed the average discount to 4% and quite a few trusts trade at a premium to net asset value (NAV).
For example, Tritax Big Box (BBOX) real estate investment trust was first into the sub-sector targeted by ASELI and currently trades at an enviable 14% premium to NAV. ASELI aims to raise £250 million and it is encouraging to note that BBOX has ballooned to £2.1 billion assets in just four years since it launched.
While prudent souls at SLA are too cautious to make much of this, ASELI may enjoy an important advantage over BBOX because the latter is invested in the United Kingdom while the former will focus on continental Europe and the Nordic states. This is a controversial point and I don’t want to offend people I respect who have different opinions but at least it can be said that ASELI shareholders won’t need to worry about whatever Brexit really turns out to mean.
Never mind the politics, though, what about the financial facts?
Andrew Allen, global head of real estate research at SLA, tells me that e-commerce now accounts for 15% of retail sales in Britain but only 8% in continental Europe. That suggests ASELI has plenty of room for growth when French and German consumers discover the joy of digital shopping rather than the drudgery of dragging stuff home from the shops.
Unsurprisingly, Allen argues ASELI is skilled up to surf these trends with €2.6 billion invested in 144 properties, making it Europe’s second-largest real estate manager after the French mega-manager AXA.
This would be a good point to declare a lack of interest. I sold my shares in SLA at 422p ex-dividend on 29 September, largely because I did not want a substantial chunk of my life savings to influence my reports on this firm. Although I had no idea back then that ASELI was coming, it is a pleasant surprise to be able to reinvest the proceeds now for a higher prospective yield. It shows there is a first time for everything as, despite my love of investment trusts, I have never previously subscribed for shares in a new launch.
Bear in mind that SLA could have chosen to make its first new fund a unit trust or even, conceivably, some form of insurance bond. But, instead, it decided its first big product launch since its £11 billion merger will be an investment trust.
That augurs well for shareholders in this fund and investment trusts in general. With £7 billion haemorrhaging out of the Standard Life Global Absolute Return Strategy funds in the last 18 months, SLA badly needs a big winner soon. ASELI might be it and I have subscribed nearly 2% of my ‘forever fund’ for these shares. The offer closes on Monday week, December 11, and trading begins the following Friday.
Full disclosure: here is a complete list of Ian Cowie’s stock market investments. It is not financial advice nor is any recommendation implied.