Two investment trusts with similar approaches to join forces
24th July 2023 10:04
by Sam Benstead from interactive investor
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These two investment trusts are set to combine, but only one set of shareholders can cash out, writes Sam Benstead.
Two Asia-focused investment trusts from abrdn are set to merge, as consolidation in the trust sector continues.
abrdn New Dawn a £258 million market cap trust on a 16% discount, is set to merge into Asia Dragon , a £419 million trust also on a 16% discount.
New Dawn’s shares jumped 6% following the news at the end of last week, while Asia Dragon was flat.
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If approved by shareholders, total assets will be around £700 million, making it the second-largest Asia trust after Schroder AsiaPacific Ord (LSE:SDP).
abrdn New Dawn will be wound up and merged into Asia Dragon. Abrdn New Dawn shareholders will be offered a cash exit if they do not want to own shares in the merged trust.
The proposal is expected to become effective in October 2023 following general meetings to approval the plans, and prospectuses published in September.
The cash option is limited to 25% of abrdn New Dawn's shares in issue, and offered at a discount of 2% to “formula asset value”, which is the net asset value of the trust minus sale transaction costs.
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Once merged, the new investment mandate of Asia Dragon will permit investment into Australasia, but its benchmark, the MSCI All Country Asia (ex-Japan) index, will be not be changed. The portfolio managers of the enlarged Asia Dragon will stay the same: Pruksa Lamthongthong and James Thom.
The trusts have relatively similar portfolios, meaning that there will not be too many changes once they merge. Top 10 shares for both trusts include Taiwan Semiconductor Manufacturing Co (NYSE:TSM), AIA (SEHK:1299), Samsung (LSE:SMSN) and Tencent (SEHK:700).
The board of abrdn New Dawn says that shareholders will benefit from greater economies of scale due to the bigger asset base, including secondary liquidity in Asia Dragon shares and fee cuts.
The management fee of the enlarged trust will be reduced to 0.75% (currently 0.85%) on the initial £350 million of Asia Dragon's net assets and 0.5% on assets above £350 million.
Chair of abrdn New Dawn, Donald Workman, said: “The combination of abrdn New Dawn with Asia Dragon Trust will provide additional scale and liquidity for continuing shareholders, while broadly retaining abrdn New Dawn's existing investment policy.
“Both companies already benefit from a similar investment approach and management style in the same investment group. This additional scale and Asia Dragon's tiered fee structure, combined with the reduced fee arrangements, will also result in a lower ongoing charges ratio for continuing shareholders.”
Over five years, abrdn New Dawn has returned 17% and abrdn Asia Dragon has returned 6%. This compared with 15.5% for the Asia-Pacific investment trust sector average and 10% for the MSCI All Country Asia ex Japan index.
The proposed merger is part of a wider trend of an uptick in consolidation, as we separately reported here.
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