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Interviewer: Hello, and welcome to the latest in the Aberdeen Standard Investment Trust podcast series. On today's income panel, we have fund managers Bruce Stout, Yoojeong Oh and Iain Pyle to talk about how they've managed their income mandate this year, and the prospects for 2021. Welcome, everyone. Now, Bruce, we'll start with you. It's been a tough year for income seekers. I wondered if you could give us a global view on the dividend picture, which areas have been resilient and which have been weaker.

Bruce: Yeah, tough is one word to describe it. It is probably the hardest year, I think we've ever seen in terms of income in global financial markets. We were just having a look back and dividend recessions are actually not that common in history, there's probably been about half a dozen in the last hundred years. But when they're concentrated all around the world, like they have been in the last 12 months, they are very deep and very painful. What we saw in terms of resilience, I guess, was sectors such as telecommunications continued to be okay. Consumer staples on the whole were good and tech companies that pay dividends, the ones that we're interested in, things like Taiwan Semi, and Samsung and GlobalWafers have continued to pay good dividends. As did healthcare and I suppose one of the surprise areas of strength for dividends was in commodities, particularly things like copper and iron ore, and also lithium. But where dividends were weak, they were very weak. And we saw draconian cuts in banks, in energy companies, insurance. And the more sort of consumer discretionary industries such as airports, travel and tourism. The final thing I would probably say about the past year for dividends is it's really been an attack on all fronts, because we've had companies that have been leveraged, and they've had no cash and had to cut. Thankfully, we don't have exposure to those types of businesses. But we've also had some companies where they've had strong balance sheets and good cash, but they’ve still cut because of the uncertainty. And then the more difficult areas have been areas where regulators have demanded cuts in things like banks and insurance, which make up about 25% of global dividends in the past so that was tough. And politicians have weighed into the argument as well, demanding cuts in some partially state owned companies. So an absolute tsunami for dividends over the past 12 months in a tough environment to negotiate.

Interviewer: And what are you seeing now from companies as there's more visibility on earnings? Are you starting to see some dividends restored? And is that focused on certain sectors?

Bruce: Yes, it's quite interesting. I mean, we don't blame any companies for suspending or cancelling dividends last year because there was so much uncertainty, it was very difficult for them to get trading statements, it was very difficult to see what was happening. And of course, they wanted to maintain liquidity. And, and that was just the nature of the environment that we were in. But there's a bit more confidence coming back to some visibility and transparency in recovery, particularly in Asia and emerging areas that don't have the overhang perhaps that the developed world has. And we’ve seen a couple of specials actually recently, one in Indo Cement in Indonesia and Sociedad Quimica Y Minera in Chile, and we've had one or two companies that are talking about restoring the dividends in the first half of next year. So hopefully it will be a more positive outlook the next year when we start to see recovery take hold.

Interviewer: Okay and finally, do you have any views on the outlook for 2021? Any themes you have picked up for that?

Bruce: Yeah, I mean, apart from the general recovery in an environment where people might start to get back to normal, I think there are two aspects here that are very, very important for the future of dividends going forward. One is corporate balance sheets, and that the companies are strong enough to invest and to return more cash to shareholders, and there's absolutely no doubt on a global basis that leads us to Asia, because the debt to equity, in general in those areas is much, much lower than a place like the United States, for example, where companies have been aggressively borrowing in a low interest rate environment for the last five years. And debt to equity on the S&P 500 is up about 70%. So the affordability’s not there in the US and the will’s not there as well. But the other thing that's also very important is the shape of the yield curves in various countries going forward from here, because, again, in a place like Asia where a 10 year bond might be 4 or 5% in India and Indonesia, then an equity yield of 4 or 5% is perfectly normal. And those are the sort of levels that are very attractive. But in the developed world where 10 year bond yields are practically zero, then it will be very interesting in the next five years, to see at what level companies restore dividends, do they go back to the traditional 4 or 5%? Or will they be lower? And that's a question we can't answer at the moment. But it will be very important for the future level of dividends going forward.

Interviewer: Okay, great. Thank you, Bruce. Yoojeong, what's been the picture on dividends in Asia?

Yoojeong: Yeah, so I can just pick up on some of the points that Bruce has just made. As one of the fastest growing areas of the world, Asia really entered the crisis with a lower base as far as dividend yields were concerned. And so dividend cuts within the region have been more modest relative to more developed regions. And of course, Asia has sold down too in March and April. And we've also seen lockdowns and travel restrictions here as well, which hurt the tourism related businesses in particular. However, the recovery in markets since then has been very strong, earnings growth, and hence dividend growth, for the region is driven by consumption. And that hasn't gone away. So favourable demographics, and the rising middle income story remains very much intact.

Interviewer: And what steps have you been taking to kind of navigate this environment, sort of steer the portfolio to the winners and avoid those that are cutting?

Yoojeong: When the pandemic hit, I didn't think there was much time to try and reposition the portfolio. But fortunately, less than 5% of the Asian Income Fund was invested at the time in companies who ended up suspending their dividend. And these were, as Bruce mentioned, those that were mandated by the regulator rather than a result of financial distress. Turnover in the fund remained low during the year. So we're still looking below 20%. And the reason we were able to avoid the bulk of dividend cancellation is due to our investment process, which focuses on good quality companies that have strong business franchises, and cash flow generation along with robust balance sheets. We spend quite a fair bit of time looking at ESG factors as well, and how resilient these frameworks are, which often tie into prudence and that culture of respecting total returns for minority shareholders as well. So dividend growth on an absolute basis is lower this year, as expected given the disruption seen to earnings growth over the summer months in particular, but actually, earnings recovery in Asia has been quick. The Asian Income Fund has enjoyed some dividend increases this year as well, as well as special dividends and cash returns from the companies that we invest in.

Interviewer: Okay, and where are you finding those sources of resilient income? I mean, are they across multiple sectors? Or do they tend to be in certain areas?

Yoojeong: Yeah, so we're looking for resilient income and income growth. And again, as Bruce touched upon at the beginning, Asia is really home to the global leaders in technology, and that's been a huge beneficiary of the working from home trade that we've seen this year. So whilst we don't invest in the internet stocks that don't pay dividends, we've banked some pretty strong share price gains from the semiconductor manufacturers TSMC in Taiwan, and Samsung Electronics in Korea to sit on cash balance sheets and they pay good dividends. And they’re looking at a strong cyclical recovery as we head into 2021 as well. So these two stocks are our largest positions within the fund. But we also invest selectively in the supply chain as well, where we see dominant market share and dividend growth. So an example there would be the mid cap company GlobalWafers in Taiwan, who make the silicon wafers that are the raw material for both Samsung Electronics and TSMC. And, as mentioned earlier there, consumption remains well supported in Asia. And we've benefited from dividend growth this year from a more diverse range of sectors than just technology. So we've seen special dividends from convenience store operators in Hong Kong, to e-commerce companies in Taiwan. And we've been invested very broadly across petrol station REITs in Australia, to equipment suppliers for COVID testing kits in Singapore. So there's been a lot of positive dividend news over the year as well from a wide range of sectors. And we're able to collect income from this broad range of sectors and markets, which has been particularly important during these volatile times such as the one we’ve all lived through this year.

Interviewer: Great. Okay. Thank you, Yoojeong. Coming to you Iain, now the UK has definitely been one of the toughest areas this year. I wonder if you could talk a bit about how you've navigated this environment?

Iain: Yeah, of course. So with the UK being a fairly income focused market compared to Asia, I think it's felt dividend cuts this year, more than many other places. And I think dividends for the for the market are down about 45%, which is obviously a pretty significant cut. In terms of how we've navigated it in Shires, I think we came into the cuts in a reasonably good position, the weighting towards higher quality companies, and a strong position in preference shares where dividends have been absolutely rock solid has definitely been helpful. And it means we've had less exposure to the sectors that Bruce mentioned where you've seen the bulk of the cuts, but clearly along with any income portfolio in the UK, they haven't been immune from dividend cuts this year. And in terms of managing through those, we've tried to bucket the dividend cutters in three sectors. So first of all, you've got the ones where balance sheet is okay, cash generation still okay, but there's a regulatory requirement to suspend dividends. And that's primarily the banks in the UK, so in our portfolio, things like Standard Chartered and Close Brothers. And in both those cases, actually, cash generation has remained strong, capital positions remain in a pretty good place. And we're confident that when dividend bans are lifted, hopefully early next year, we'll see dividends resume. So it's fairly easy to sit and hold on to those first kind of companies. The second bucket is the companies where you've got a really sharp, short and hopefully temporary shortfall in cash generation, and they can be things that are consumer facing, something like Howden Joinery selling kitchens in the UK is a good example, where no one is buying a kitchen in the second quarter of this year. There's no cash generation, the right decision is to suspend dividends, but when the market normalises we'd expect cash generation to come back, the balance sheet is in a good situation and dividends will resume and in fact, Howdens is one which has resumed paying dividends already. And again, where we like the companies where they're high quality names, we're going to hold on to those positions and be a bit patient. And the third bucket is a difficult one – it’s where actually, even when the world normalises next year hopefully, there will be some structural change and where balance sheets have deteriorated to such an extent that we don't see income coming back from those companies within an investable timeframe. And we had very few of those in the portfolio but Cineworld is probably an example where that industry may well structurally change. And from an income perspective, it's time to move on. So we've managed, we've managed through it that way. But I think the nice thing is that income within Shires has been down substantially less than the market. So we've come into it in a good position and that has paid dividends.

Interviewer: Alright. And you’ve seen some of the biggest UK dividend payers cut. Is there a sense that the pandemic could reshape the dividend landscape in the UK, moving away from some of those old economy companies that have dominated in previous years?

Iain: I think there is certainly going to be a little bit of a shuffling of the pack. If you think about the big income constituents of the index historically, then actually a lot of those names have been very resilient. So, utilities, health care, tobacco, telecoms and even the miners actually have all been very resilient through this year. The two areas where we've seen dividend cuts have been the banks and the oil companies. And the banks, I think is, a temporary thing, it will come back probably at a slightly lower level than it was pre crisis. The oil companies is a more of a structural thing, I think that they transition through an energy change over the next few decades. And if you look at the top dividend payers this time last year, then the top five, or the top three, were HSBC, Royal Dutch Shell and BP and they have now all slipped out of the top five. So that's obviously quite a big shift in the makeup of income within the UK market.

Interviewer: Okay, and a question to everyone now, about the extent to which you've had to draw on reserves to shore up dividend payments to shareholders this year, and the impact that's had on reserves going forward. Bruce, could I put that to you first?

Bruce: Yeah, so obviously, the very attractive aspect of the investment trust as a business is that the trust has reserves in order to cover this and Murray International has a lot of reserves, I can't give you the exact number for the simple reason that I don't know it yet. The year end is the end of December. But the board have already committed to maintaining the dividend, you know, through this difficult year. And over the last 5 years, or 10 years, or whatever we've constantly been adding to the services and in fact have added 30 million in the last 10 years. So that’s what the reserves are there for - they’re there for a rainy day. And this has been an absolute downpour this year. So hopefully, you know, next year, we'll get back into a more stable situation. And we'll just use whatever reserves we have to use this year to through it.

Interviewer: Okay, and Yoojoeng, same question to you.

Yoojeong: Yep, very similar for Asian Income. We started 2020 with close to two thirds of dividends covered by reserves, so a very healthy safety buffer that we’ve built up over the years. For the past 12 years, the Asian Income Fund has grown the dividend per share paid to shareholders. And we would also very much like to maintain this trend, even during this downpour that Bruce alludes to. So this will mean we will dip into reserves for the first time this year, but it will still only be very modest, given some of the dividend trends I spoke about earlier. And the majority of the reserves will remain untouched for future rainy days.

Interviewer: Great. And finally you Iain?

Iain: Yeah, very much the same again for Shires - we came into this year with around one year of dividends covered by reserves. And this year, clearly, we're going to have to draw down on that slightly. But actually, it'll be at a pretty low level and going forwards I think we – we’ve got an outlook which will hopefully allow us to build back towards coverage within the next few years. So the drawing should be relatively modest.

Interviewer: Great. And then just finally, Iain, I'll come to you first on this. If you had sort of one or two things that an income seekers should really bear in mind for the year ahead, what would they be?

Iain: I think, have a little bit of patience on income. As Bruce alluded to earlier, a lot of companies are going to come out of this year with a balance sheet slightly more stretched. And we're probably going to go into a restocking cycle, which is going to have a draw on cash through next year. And therefore it might take a little bit of time for companies to restart dividends and to get dividends back up to prior levels. So we'll need to be patient. That doesn't mean those aren't very good investments and will still generate a good level of income. But we're not going to snap back to 2019 level straight away. And also, I think be aware of a bit of a change of mix of how we earn income going forwards, in that the sources of income will be different as we've already discussed. And we'll probably see a shift away from high levels of ordinary dividends to more something more flexible going forwards because companies will not want to put themselves in a position where they need to cut anytime in the near term. So those things we need to think about as investors but hopefully with dividends, we're going to be in a period where we can see some decent dividend growth over the next few years and that's actually when income as a style performs better.

Interviewer: Okay, great. Yoojeong, would you add anything to that?

Yoojeong: Yeah, so there's a lot of macro stories coming out that people are focusing on. We're talking about vaccines, we're talking about all this - all these stimulus measures globally unwinding and also the risk of inflation as we talk about trade frictions, particularly impacting regions of Asia, with supply chains having to reorganise as a result of that, so these are all things that markets are worried about. And we are worried about too, as well. But in the context of that, in the context of the macro noise, I think what we have consistently done over the past 10 plus years is really stick to what we do. And that's to continue to invest in good quality companies that are generating strong cash flows, who can support good dividend yield, as well as dividend growth. And that will hopefully enable us to continue delivering a good total return package to shareholders in Asian Income.

Interviewer: Great, thank you. And a final word from you, Bruce, if I could on that.

Bruce: Yeah, I guess – one thing that we've learned over the years is that when you have concentrated sources of income, you’re always very vulnerable. So it's something that at Murray International we've tried to avoid for a long time and, and the world has changed to the point where there are many more companies and markets that have embraced total return to shareholder and do pay higher and growing dividends, perhaps the US is the one anomaly there. So we will continue to focus on diversification because diversification is key in terms of countries and sectors, and different types of businesses, so that you have a spread of income sources throughout the portfolio. And it's not just dependent on one sector or one industry where if something happens, then you get into difficulty. So diversification for us continues to be key. Not by yield, but by good balance sheets so our dividends can grow.

Interviewer: Great. Okay. Thank you everyone for those insights today and to our listeners for tuning in. You can find out more about the Aberdeen trusts at www.invtrusts.co.uk and please do look out for future podcasts.

This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for information purposes only and should not be considered as an offer, investment recommendation, or solicitation to deal in any of the investments or products mentioned herein and does not constitute investment research. The views in this podcast are those of the contributors at the time of publication and do not necessarily reflect those of Aberdeen Standard Investments. The value of investments and the income from them can go down as well as up and investors may get back less than the amount invested. Past performance is not a guide to future returns. Return projections are estimates and provide no guarantee of future results.

Podcasts from Aberdeen Standard Investment Trusts - invest in good company.

Interviewer: Hello. Welcome to the latest in the Aberdeen Standard Investment Trusts podcast series that we have for our panel today, our economist Luke Bartholomew will be giving his thoughts on the extraordinary 12 months we've just witnessed, while fund managers, Ben Ritchie, Bruce Stout and James Thom will be doing some crystal ball gazing on what we can expect in 2021. Welcome everybody. And now, Luke, turning to you first, nobody needs reminding that it's been a very unusual year. And I wonder if you can talk us through some of the highlights and low lights?

Luke: Sure. I think you're right, that it's been what to say at the very least unusual year. It's one of those years where all the cliches that we use often in this industry, extraordinary historical unprecedented for one. Absolutely true and on the nose. And in that context, I don't think it is too difficult to think of some lowlights; the absolutely astonishing collapse in economic activity that we saw in the first half of the year 25% or so contraction. In the UK, for example, one has to go back hundreds of years of economic history to find something comparable. And of course, you know, that economic costs really significantly understates the true welfare costs ,not just the public health consequences, and the tragic loss of life, but also the shutting down of opportunities for so many people. The fact that people weren't able to go out and live their normal lives, the huge increase in unemployment that we saw in the US less so in the UK, and the rest of Europe as different policies were put in place. But yeah, I think the economic costs were just absolutely astronomical. And really, as I say, I mean, truly are cliche inducing. So I mean, I think there are some positives, and if not positive, then at least things to give one some hope. First of all, how well policymakers came together in late March, early April, when it looked like not only were we facing a public health crisis, but also perhaps the financial market crisis, monetary and fiscal policymakers were able to largely avert that. And on the whole they have put in place policies that have supported cash flow and income through this extraordinary business. Now, no doubt there will be some long term consequences from that, but they have certainly diminished some of the short term costs that we might have faced. And then the most obvious highlight, I suppose, is the good news that we've had on the vaccine evidence, that if enough capital and human engineering, it is deployed in one direction, and we are capable of quite extraordinary things. And it looks like as we speak today, that there is light at the end of the tunnel as it comes to the vaccine. And I think perhaps that does speak positively, for our ability to solve user problems as well.

Interviewer: And with potential normality ahead, do you still think that the pandemic will permanently change some aspects of the global economy?

Luke: Yes, I are expecting the economy to end up being permanently smaller than it otherwise would have been. So there is some permanent loss of economic activity. And I don't think that's too difficult to understand in terms of the psychological scarring, which leads to reduced savings, reduced investment in various bits of sort of stranded capital that have come out from this crisis that are no longer quite as economically viable as though as they once were, the fact that a whole bunch of investment streams are probably not going to go ahead over the last year in a way that they otherwise would have done weighing on future growth. The scarring to the labor market that we might see from the periods of unemployment and inactivity. But beyond that, I think it's also possible to see other structural changes as well. It's hard to believe that we would have gone through this, and it won't have changes in some fundamental ways. The most obvious, I guess, is working from home, I suspect we'll be doing a fair bit more of that in the future. Perhaps our travel patterns will change, perhaps where we live and why we live in those places. Those will also change as well, particularly if we do end up working from home much more. And I guess the great imponderable from all of this is to what extent the capacity that we’ve shown to make great sacrifices when necessary , to have extraordinary innovation for the state to mobilise resources, whether that speaks to our capacity to deal with problems, like climate change, and what it might mean about how we go about tackling that in the future.

Interviewer: Yeah, and what about a final verdict on the health of the global economy today? Are you reasonably optimistic looking into 2021?

Luke: So I think right now, the way we frame it is, second wave versus the vaccine for the short term outlook is once again, looking pretty dark. I think the UK and Europe are only now only going to avoid a technical recession of two quarters of negative growth, it looks like key for this year is going to be a quite large contraction. And then next year, we're only expecting a very modest growth. But after that, I think for the second half of next year, we could find ourselves growing quite robustly. One of the things that we learned this summer is that when lockdown restrictions are lifted, in the short term, you get a pretty large boost from growth. And as lockdown measures get wound down in the second half of next year, the vaccine allows us to return to some kind of quote, unquote, normality, that is a period where we could see quite rapid growth and potentially a return to something like the old normal, but I suppose one final cautionary thought to end on is let's remember what that normal is that we're going back to it was already a world of pretty disappointing, sluggish growth, a world of quite low inflation with central bankers and other policymakers struggling to get the targets consistent inflation, and a world of very, very low interest rates. And to the extent to which we are going back to, quote unquote, normal. I think that is the normal we are going back to.

Interviewer: Okay, that's great. Thank you, Luke. If we could turn to you now, Bruce, and ask the same question. How optimistic Are you looking out over the next 12 months?

Bruce: Well it's always difficult to predict, isn't it? and optimism is not something I think that familiar to the average Scottish psyche. So I'll try and be realistic rather than optimistic with what we've got in front of us. And, I mean, undoubtedly, this has been an extraordinary period. I can't remember one in living memory, who has life and livelihoods and health and wealth, were all threatened at the same time. I suspects as we've heard before, that, for many nations and individuals, life will be a bit awkward, and we have changed, I guess. And for investors, that means an unfamiliar landscape, I suppose relative to the past, which may ultimately unfold. However, I think, as always, it be very presumptuous to extrapolate the events and investment teams of this year, because it was so unusual, as some sort of new normal because for many the new normal, is less about choice, just simply a reality. So I think as the world returns to something like it was before, then, I suppose we are quite optimistic, because we've seen such a gulf between a narrow number of stocks and themes that have performed this year, and particularly in e-commerce and technology. But on the other side of that, people totally ignoring things like oil and gas and commodities, and transport, tourism, etc. As if we're never going to need those again, really all sorts of cyclical assets and you can add to that Emerging markets and Asia as well. So there's a huge still a huge valuation gap between a small number of businesses that have done well and a large number of good quality companies that have lagged, and that valuation gap looks quite interesting for next year.

Interviewer: And so while the pandemic has reshaped the prospect for individual industries, you think that might have been overdone, a bit, that actually it is not it's not going to be as profound a change as markets have, have presumed?

Bruce: Yes I mean, we've gone and been very, very active this year. And looking at all the businesses that we own. When I see all the businesses, it's a concentrated portfolio, Murray International is only 50 companies, but we wanted to look at them, again, with a sort of fresh pair of eyes in light of what's been happening to see if things have really changed, because, I mean, there's a lot of talk about spare capacity out there. But a lot of the spare capacity may be obsolete capacity. Now, we don't know in which case, and some companies that do have good production services may be in a very advantageous position to raise prices and rebuild the balance sheets to ensure for, for some businesses like long haul travel, and the impact that it has on jet engines, or high street retailing, maybe the whole cash versus cashless society has changed. But for a lot of other businesses, they will go back to some semblance of normality, because they add essential services and commodities for people in their lives. So it's towards those types of growth companies that we're looking at the moment because I think that's where the best opportunities are, particularly we see in Asia and emerging markets, because if there's one thing that that looks as if it's going to evolve from this, there's going to be a legacy of huge public sector debt, particularly in the developed world. And that has to be paid off over a long period of time, which will have implications for taxation on both the individual level and the corporate level, and just a general constraint on growth. Whereas, particularly in Asia, in the developing world, we don't have the same fiscal imbalances, there's much more flexibility to still have fiscal policy. And there will be such a legacy as far as we can see. So that is a change, but it's a positive change for those areas.

Interviewer: And you mentioned a couple there, but I wonder if you could just talk a bit about the key themes running through the portfolio as we move next year?

Bruce: There are one or two key themes. I think the issue that that we've had this year is a real concentration of markets, particularly in technology and e-commerce. And, as markets have got narrower and narrower, there has been less focus on diversification and that that is one of the themes of Murray International we have over 25 different countries and about 60 different businesses. So it is a very diversified International Trust, that gives us a broad exposure for capital growth and for income growth. But also, the other main theme is that we are mainly focused on Asia and the Emerging Markets world with over 50% of the portfolio in Asia and the Emerging Markets world because that's where we feel going forward the best relative growth opportunities are. So the next five to 10 years at least, plus also remember that there will be a big legacy from the pandemic this year in terms of huge public sector debt that's been racked up in the developed world. And it has to be paid for, I guess, in higher taxes, both for individuals and for corporations at some point. So there is a drag for growth prospects in the developed world that just isn't there in Asia and emerging markets to the same extent. So that tailwind should be beneficial as well, as we go forward.

Interviewer: Great. Okay. Thank you, Bruce. And, James, coming to you, though, as Bruce mentioned, that Asia appear to have emerged stronger from the pandemic. I wonder if you could give your verdict on Asia's response and the economic recovery, you've seen since?

James: Yes, I'd largely agree with Bruce, although it does feel a little premature, perhaps delivering a verdict at this stage, because it's still, you know, we're still very much in the midst of the pandemic, and, and working our way through it. But having said that, I think, absolutely, Asia has done in general a commendable job, I think in the way in which they responded to the pandemic and managed their way through it. So much so now that we have several countries out here that will post positive GDP growth this year. So despite the very large hit to GDP in the first quarter, and first half of the year, given the their ability to contain the virus, we're now seeing economic activity recover quite quickly. And in particular, in China, the big economy here, but also Taiwan, Vietnam, I think are all due to deliver positive growth this year, which is quite a stark contrast to much of the rest of the world, and I think is a testament to the really very rapid and focused response that these countries had to containing the pandemic, locking down the borders, implementing an effective track and trace capability and obviously supporting economies with the stimulus when needed. So I think, overall, it is looking certainly relative to the rest of the world, pretty encouraging. Here, obviously, there remains the risk of second or even third wave. And we are continuing to see that and it's by no means a panacea. There are several countries here that are still battling through that that's the first wave, India stands out in particular, as a country that has seen very significant numbers of cases. But even there, fortunately, we're now seeing case numbers peak, and hopefully, it will continue to trend down those play that kind of second wave risk does remain.

Interviewer: Okay, and how are you positioning the Aberdeen New Dawn Investment Trust for the year ahead?

James: Well, the focus as ever remains on quality companies. So whilst growth is recovering, it is still pretty turbulent and an uncertain environment out there. So it feels prudent still to be invested in market leading companies with strong balance sheets and experienced management teams. So that's very much the focus overall. Having said that, we continue to think about the structural kind of growth themes and stories out here. And despite all the doom and gloom, I think there remain many of these kind of structural growth trends here in in Asia as Bruce was alluding to. So you have continued rising wealth levels and urbanisation and all of that is thriving demands, basic products and services, as it has for decades already. And I think that will continue but there are a lot of other kind of newer, faster moving trends, where Asia is playing a kind of key role. So the tech sector is one and we've got in Aberdeen New Dawn a substantial waiting. They're both in the kind of hardware side of the sector. So semiconductors, for example, where we're seeing multiple new drivers emerging for demand there, whether it's continued demand for high powered computing, data centres, cloud services, 5G, artificial intelligence, I mean, it really is a whole range of new drivers there. So I think that remains an attractive long term story. We're continuing to see substantial innovation in the internet sector. And with many of the Asian companies leading the way there, I think there's plenty going on there and COVID, as it has for much of the rest of the world has been a catalyst for that sector. We continue to see that transition from offline to online. But then I think also, you know, in the green economy, there's plenty going on here in Asia, whether it's the shift to electric vehicles, or to renewable energy. And many of the countries here are coming up with quite ambitious targets. So I think that's providing interesting investment opportunities for a slightly longer term investment horizon.

Interviewer: And what extent would you say that the pandemic has fundamentally reshaped the outlook for Asian companies? Or do you believe like Bruce that this has gone too far, at times that people have been assuming a new normal? And perhaps it's not going to be that different after all?

James: Yes, it's so difficult really to have a clear view, at this point in time, in my personal opinion on working from home, my feeling is that we shouldn't yet be writing the obituary of office space and commercial real estate just yet. And I suspect tourism and travel will eventually rebound, though, admittedly, it may not get back to pre-COVID levels. But I think, that aside, certainly there are changes happening, as a consequence of this we have talked about the internet companies already and that has been a catalyst to moving consumption online. I think that that's very real and is permanent. We've got a number of IT services companies in that part of the world, and they're seeing their corporate clients, increasing their efforts to digitise processes and shift things to the cloud. And companies themselves, I think, are increasingly doing this, you know, we see it across the region, in an effort to, I guess, they've been forced to go to digital ways of working, but have found in many cases, that's a relatively effective way of working and cost efficient, were working. So it's been quite big cost reductions happening as a consequence of this. So I think there are, you know, a number of changes that, arguably could be positive for Asian companies. And we'll have to see how permanent those proved to be. But I think many of them will be structural.

Interviewer: Great. Okay. Thank you, James. Ben, let's turn to you now The Dunedin Income Growth Investment Trust invests across both the UK and Europe, perhaps Europe, can you see a better year ahead the stock markets in the region? And if so, you know, any particular hotspots, either regionally or sectorally?

Ben: Given everything that's happened in 2020, looking at the pan European index it is actually not too bad to be down mid single digit percentage. I think, given everything that's happened is a reasonable results. The UK has been a little bit weaker than that, overall. But I think given the ginormous economic impact that we saw earlier in the year from COVID, I think to have ended up with that outcome is reasonably okay. I think looking into next year, as Luke was sort of painting the picture, really, there's a combination of sort of near term economic weakness, which is likely to feed into some pressure on companies. But then you've got a combination of expected rebound, as we move into the second half of the year, perhaps into the second quarter. And then you've got the the rollout of of the vaccines, which I guess should support further growth. And I think that's the sort of environment where we would probably expect that investors will look through the near term weakness and look out to perhaps the more optimistic picture for economic growth, and certainly when you look at what consensus is expecting from an earnings perspective, then, you are probably looking for somewhere between 35 and 45% earnings growth next year, you know, that's probably likely to be supportive for the outlook for equities as well. Although, when you think about this year, we saw that 38% decline in Europe, and a bit more in the UK. And markets have not taken that too terribly overall. So we'll have to see that imbalance. But I think certainly, next year, looks like it might be a little bit better. But I think following on from what Bruce was saying, it's always hard to say how these things will develop really at the market level.

Interviewer: And I mean, the region has had valuations on it’s side. Is that still the case, are the valuations still pretty competitive compared with its global peers?

Ben: Yeah, I mean, I think they are. But I would always caution against reading too much into that. I mean, I think, you know, Europe as a market has been cheap for most of the last 20 years. So I'm not sure that's the new thing. And it's also generally been a bit of a disappointing place for investors at a global level, you know, the UK has been on a fairly significant discount to most other markets since Brexit, and again, that hasn't necessarily helped its performance. So I think it'll really comes back down to what we think companies can deliver, in terms of earnings and cash growth. And also the starting prices which we're paying for those businesses, so we still see plenty of opportunities at the company level across Europe and the UK. But we wouldn't be making a big play of the fact that the overall markets and necessarily cheaper than other ones in the world, because I also think when you actually look at details, there is some reasonable reasons why the UK might be cheaper, they have nothing to do with Brexit, but have a lot to do with big chunks of the index being in sectors, which traditionally always have relatively low valuation like banks or oil companies or mining, when you look at them on a PE basis. So you know, I think, optimistic at the company level, but we would be cautious a little bit on using valuation as the primary reason to be enthusiastic about those markets.

Interviewer: Okay, and how are you positioning the Dunedin Income Growth Trust for the year ahead?

Ben: So see, one of the things we've really focused on over the last couple of years is not putting all of our eggs in one particular outcome basket. So to go back to 2019, one of the things that we did there, as we approached the deadlines around Brexit deals, was not really having any great insight into how that would play out was just to make sure that we were quite balanced in terms of our positioning, to make sure that we had good domestic UK exposure, which is prosper in the case of a deal, but also have some good overseas companies, which continue to generate good returns, if we were to see a reasonable outcome. And I think we've tried to take that kind of approach where if we don't know, then why take in a big bets, either way. And I think that's much the same, really, as we look out into 2021. And we look at that, for the last few weeks, we've had the US presidential elections, we've had the development of vaccines, through both of those quite big events we managed to keep relative pace with what's been going on in the market, despite having proven to be pretty resilient for most of this year. So we see that as a sort of some degree of a good outturn in terms of positioning. And I think if we look into the year ahead, we want to be both resilient in tough market conditions, if we do see sentiment turned down for whatever reason, or the economy, not deliver what people expect. But equally, you know, we want to be able to participate in any available growth opportunities that might be there. So, you know, perhaps the segment where we might lag the most would be if we really do see the very, very distressed companies in the market perform incredibly strongly in 2021, that probably won't be particularly helpful for us. But otherwise, I think we feel pretty good about our outlook. And we put an interesting portfolio with a range of different companies operating in different economies, different geographies, different economic drivers. And I think that overall leaves us feeling quite confident that we're well positioned with a good bunch of companies, you know, almost regardless of what comes out of some sort of macro-economic or strategic political perspective.

Interviewer: Great. Okay. Thank you, Ben. And thank you everyone for those insights today. And thank you to our listeners for tuning in. And let's hope for a less eventful 2021. You can find out more about the full range of Aberdeen Standard Investment Trusts www.invtrusts.co.uk and please do look out for future podcasts.

Important information:

This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for information purposes only and should not be considered as an offer, investment recommendation or solicitation to deal in any of the investments of products mentioned herein, and does not constitute investment research. The views in this podcast are those of the contributors at the time of publication and do not necessarily reflect those of Aberdeen Standard Investments. The value of investments and the income from them can go down as well as up, and investors make it back less than the amount invested. Past performance is not a guide to future returns, return projections are estimates and provide no guarantee of future results.

Podcasts from Aberdeen Standard Investment Trusts - invest in good company.

Interviewer: Welcome to the latest from our Aberdeen Standard Investment Trusts podcast series. With me today is Martin Connaghan, co-deputy manager of the Murray International Trust. We're going to be discussing where he is seeing opportunities in a changed world. Hi, Martin. When we last spoke, we were in the thick of the crisis. And as the outlook has become a little clearer, Have you made any changes to the portfolio?

Martin: We have exited a couple of positions since May. I’m not sure the outlook necessarily became that much clearer since we last spoke, but we definitely have made some further changes to the Trust. In May we sold out of the Australian Coca Cola bottler Amatil, and we also sold out of Ultrapar which is a Brazilian fuel distribution business. And unfortunately for those sales, they were really driven by our regional colleagues either not covering or selling out of those stocks and us following suit. And so we also sold out of Public Bank, which is a financial stock in Malaysia and again, for fairly similar reasons. On the other side of that, we initiated a new holding in China Resources Land, which is a real estate developer which focuses on residential development, mainly in first and second tier cities in China and more recently, shopping malls. So it has a very solid balance sheet and a very solid management team that have a very good track record of turning projects around on time, utilising the land bank, and delivering solid margins. We also initiated a new position in Ping An Insurance, again focused on China. This is a bit of a financial conglomerate really, again very strong management team that have been on the front foot really with some very shrewd investments in technology. And this company's very cash generative - 2.7% dividend yield with 15% and 30% growth in net dividend over the last one, three and five years. And then finally, just in July, we initiated a new stock in Hon Hai Precision Industry which is a Taiwanese electronic manufacturing services business. It manufacture products mostly, and most famously for Apple, the iPhone and Nintendo on servers and tablets and PCs. It also has some quite interesting subsidiaries which expose it potentially to interesting markets and electric vehicles, etc. And, again, offers a pretty attractive 5.4% dividend yield at the moment. So, you know, we have been active, but always looking for opportunities to make changes to the portfolio if we feel we can upgrade the quality of the investments or drive further levels of diversification within the portfolio.

Interviewer: Okay, and you think that the outlook actually isn't getting an awful lot clearer, but what kind of feedback are you getting from companies? Where would you put them on the optimistic versus pessimistic scale?

Martin: Very polarised to be honest, depending on what their underlying business is exposed to in terms of markets or geographies. So it varies quite wildly. Taking some of the largest investments within Murray International Trust, for example TSMC which is the Trust’s largest single investment. It's had a very, very solid year and solid second quarter results in mid-July where they actually raised revenue guidance, seeing very solid demand for the product coming from 5G smartphone related product launches and high performance computing. So that's a company that has really done very, very well this year and the management team are in a buoyant mood as a result of that. But then on the flip side, something like CME (Chicago Mercantile Exchange), which is the world's largest derivative exchange, it's been struggling a little bit more recently. A significant portion of the revenues come from interest rate products, and after the collective action of central banks the world over, interest rate volatility has collapsed so market participants have not really seen the need to potentially hedge that risk, which has leaned on volumes and leaned on their results at the end of July. So, I mean, there's still a lot that we like about that company - it's just very cash generative, and doing a lot of interesting and clever things in data and the like. But, those are two examples of businesses that are, you know, seeing different opportunities and risks in front of them at the moment. I mean, very generally, you know, it's been a case of technology's been the standout performer. And healthcare has also been a very solid area of the market, so management teams from those areas are typically pretty buoyant. And then again, on the flip side, financials and energy stocks have been the laggards. So again, management teams perhaps a little bit more on the back foot there.

Interviewer: And has it allowed you to build a kind of aggregate view on recovery, whether that might be V-shaped at the most optimistic and L-shaped at the most pessimistic?

Martin: I mean, not to sit on the fence, but the likelihood is it’ll probably be somewhere in between the two. I mean, first of all, if we're talking about equity markets, then you know, the recovery has very much been a V-shaped recovery. Again, very much driven by the United States and a pretty narrow band of stocks from the technology space. But we think probabilities are pointing more towards somewhere between the two. And even then it could be quite country and region specific. If we scratch beneath the surface of the recent data releases, then you're already seeing quite marked country level performance gaps, largely reflecting the relative success or failure of policy makers in containing COVID. So, you know in the US a lot of the July's data was certainly providing signs that US activity were continuing on the process of normalisation. You know, we saw gains in payrolls and retail sales, industrial production, but July's numbers were noticeably smaller than the initial bumper reaction that we've seen previously. And I guess the expectation is that all this data probably shows a further

deceleration in that. And then taking China I guess as an example, you know, industrial production there it's continuing to expand but again, growth is tapering off a little bit, and has actually being a little bit disappointing in places relative to expectations given the notable surge that we've seen in exports there. And again, even within China, we've seen a striking gap opening up between the pretty much near full recovery in industrial production, but then the much more partial recovery in retail sales which are about six and a half percent below where they were in January. So we're definitely expecting a slowdown in the pace of recovery as we move into the second half of the year. And then the question mark is obviously what the longer term impact is. There's just a number of unknowns out there that could impact, that could improve the situation or make it worse very, very quickly. You know, we’ve already seen flare ups in Australia and South Korea and it really just depends on what the government response is to that. A vaccine, you know, that could change the situation very, very, very quickly. So we’re expecting a sort of slowdown in the pace of recovery, but unknowns and risks and potential positive catalysts are definitely out there and make it quite difficult to make a call with any degree of certainty at this point.

Interviewer: Absolutely. This Trust has always had a kind of meaningful weight to emerging markets, do you think they might have an advantage as the world's recover? They've got relatively less debt, they can possibly sustain higher growth because of that – are you sustaining you're weighting there?

Martin: Certainly, we’re maintaining everything for now. And as mentioned earlier, we've added to the Asian exposure with those two Chinese focused businesses. You know, those are positives things - like less debt and potentially, you know, higher growth. Those are definitely positives that we see within certain emerging market companies. But again, it also is going to be very much driven on the extent to which the outbreak is brought under control in some of these countries. Asia certainly thus far seems to be on a much safer footing in that regard, compared to say, Latin America, for example. So, as I mentioned, low debt and the prospect for better growth are things that we traditionally like about emerging market opportunities and the Trust still reflects that, but this isn’t a traditional environment that we find ourselves in and things such as, you know, the virus being brought under control and activity picking up in developed markets, and also, you know, investor sentiment improving will very much play a part in terms of how emerging markets fare as the world recovers as much as anything that emerging markets can do themselves in isolation.

Interviewer: And it's obviously been a challenging time for dividends, so it appears to have been very mixed across the world. How have you found companies in the portfolio have fared?

Martin: It has varied again widly. You know, we're seeing quite a resilience perhaps in most of the North American names – the US is the only major market not to really suffer a drop in dividend payouts in the second quarter, in fact dividends in the US actually increased by 0.1%. And I think it was only about 10% of companies countrywide that actually cut dividends. I mean US firms have the benefit, I guess, of spending so much money on share buyback programmes the last few years, so those have been what’s been getting cut. It was about $700 billion last year in the US alone, so it's that that has been cut, rather than the dividends. So the US has been, you know, resilient. Names within Canada, you know, Canada grew dividend payouts by 4.1% in the second quarter. And then I guess on a relative basis, you know, Japan has fared pretty well where companies actually, increased or maintained their dividends, while overall dividend payers in the country fell by about 3%. So on a relative context, they've been okay. Sector wise, names within healthcare, communication services, which the Trust has a decent exposure to have also proven quite resilient. Most of the carnage has been within the UK and Europe, we have seen dividends, you know, 54% and 45% respectively in the second quarter. So it's been very, very mixed, but there have been, you know, areas of resilience and we do count ourselves quite fortunate that in Murray International Trust we are allowed to, you know, make full remit of that global mandate to try and secure dividend revenues to, you know, maintain payouts through to our shareholders.

Interviewer: And as we look into the second half of the year, actually the final quarter of the year really now, isn't it? But do you think market prices reflect the risks? I mean, as you said, market rises have been quite narrowly drawn lately, technology stocks and things like that, but what's happening to the rest of the market?

Martin: I will say, we're seeing too many stocks that are jumping up and down, and there's been bargains right here. And I'm certainly comfortable with the work that was done in the portfolio, potentially to do more of that where we can see a little bit of volatility, weakness kick back. But I think if you strip out that handful of technology companies then the market is looking a little bit more realistic in terms of where we should be given what's happened. European markets are still offering double digit year to date in sterling, in the UK we still have some uncertainty around Brexit negotiations for example. And markets like Spain and Italy which have just been so heavily impacted by COVID and emerging markets as mentioned earlier, you know, are not without risk. So I think if you rip out that handful of stocks which have been the focus of the market and which have driven the NASDAQ being up 30% in sterling terms yesterday - quite incredible. You know beyond that, we think the risks are pretty much reflected in what we're seeing. There's a number of very good businesses within technology and consumer staples and healthcare which have proven themselves to be pretty resilient through all of this. But just none of that’s, not really being missed by the market, we believe at the moment.

Interviewer: Okay, and just finally, turning to the portfolio today - how does it look today? Are there any really dominant themes that you'd highlight?

Martin: I think you're right in saying that the one we would point to is the one off diversification. Really trying to make full use of the opportunity set that we have available to us. Looking for companies that do different things in different parts of the globe and, you know, that has potentially been approach that has been punished at times over the last few years, but in terms of, for an income based mandate, trying to earn that income, and trying to secure the earning of the dividend income and trying to maintain our own levels of capital returns to shareholders, we feel that that's been the main focus of ourselves and we don't necessarily see that changing. And again, as we look at some of the names that we’ve put into the portfolio, like Broadcom earlier in the year, and AbbVie earlier in the year, Hon Hai, Ping An, China Resources Land – it’s what’s really been borne out in terms of the activity that we've undertaken this year. So if there is a theme to be evident within the Trust at the moment, it's certainly – I would point to the diversification, the desire for diversification.

Interviewer: Okay, thank you, Martin. For those insights today and to our listeners for tuning in. You can find out more about the trust at www.murray-intl.co.uk and please do look out for future episodes. And

Important information:

This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for information purposes only and should not be considered as an offer, investment recommendation or solicitation to deal in any of the investments of products mentioned herein, and does not constitute investment research. The views in this podcast are those of the contributors at the time of publication and do not necessarily reflect those of Aberdeen Standard Investments. The value of investments and the income from them can go down as well as up, and investors make it back less than the amount invested. Past performance is not a guide to future returns, return projections are estimates and provide no guarantee of future results.