The management team of a closed-end fund (CEF) is becoming an increasingly important factor in driving the fund’s performance and dividend payouts. A recent story unfolding in the UK highlights the struggle of asset-management firm abrdn plc to hire CEOs, as their shares have only risen by 2.6% annually over the last decade, compared to the roughly 10% average return enjoyed by their competitors. This lackluster performance is reflected in the underperformance of abrdn’s CEFs, with a total NAV return of just 7% year-to-date, trailing behind the S&P 500 and global stocks.
With abrdn’s executive suite vacancies remaining unfilled, there is little hope for a turnaround in the firm’s performance. This presents a risk for abrdn CEFs, as CEFs often trade at discounts to NAV. While two of abrdn’s 16 managed CEFs trade at premiums, the best performer, the abrdn Income Credit Strategies Fund (ACP), has only delivered a total NAV return of 7.5% over the last five years, representing an annualized total return of just 0.45%. This underwhelming performance raises doubts about investing in abrdn’s funds, especially those priced at premiums.
One of abrdn’s most-discounted funds, the abrdn Japanese Equity Fund (JEQ), offers a 16.9% discount to NAV, making it an attractive option for investors seeking discounted CEFs. However, JEQ underperforms the Japanese stock market, lagging behind the iShares MSCI Japan ETF (EWJ) in recent years. This widening performance gap between JEQ and the Japanese stock market indicates that JEQ shareholders are missing out on the country’s stock market renaissance.
Despite the appeal of discounted abrdn funds, the lackluster performance of these funds suggests investors may need to look elsewhere for sustainable high yields and growth opportunities. The struggles of abrdn plc to attract top talent and fill executive positions could continue to weigh on the firm’s performance and the performance of its CEFs in the foreseeable future. In light of these challenges, investors may need to exercise caution when considering investments in abrdn-managed funds and explore alternative options for achieving their investment goals.
