Aberdeen Standard Multi-Asset Income Fund (CRS0001AU) Report & Performance

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Aberdeen Standard Multi-Asset Income Fund Fund Commentary January 31, 2021

The fund posted a gross return of 0.20% in January, largely thanks to positive contributions from the Global Dynamic Dividend Fund and the Syndicated Loan fund. Across world markets, appetite for risk assets remained robust in the new year. Optimism over newly- inaugurated US president Joe Biden’s proposed US$1.9 trillion stimulus plan, as well as the US Federal Reserve’s continued support for a loose monetary policy, propelled global stocks for most of January. However, a surge in volatility in the final week due to high-profile short squeezes in a number of US stocks weighed on broader markets and erased earlier gains. Bond markets were unperturbed by the extreme stock market volatility, but prospects of more US stimulus led to an increase in government bond yields (prices fell).

On a total return basis, stocks fared better than bonds, though both asset classes ended the month in the red. In equity, emerging markets again outperformed their developed-market counterparts. Asian stocks led the way, as better-than-expected Chinese GDP data raised hopes that strength in the world’s second-largest economy would underpin growth in the region. On the other hand, most developed markets fell. European stocks were among the largest laggard as the European Union grappled with vaccine supply shortages and poor economic data. Separately, Australian equities were flat as losses towards the month-end erased earlier gains.

Notably, falling iron ore prices weighed on mining stocks. Within global fixed income, the riskiest parts of the spectrum continued to shine. US high-yield outperformed investment-grade bonds as ratings agency Fitch lowered its expectations for defaults in 2021. Meanwhile, US government bond yields moved higher, driven in equal parts by rising inflation expectations on the back of fresh stimulus as well as an increase in real yields. However, towards the end of the month, a potential delay in stimulus measures arrested the yield rise, resulting in the 10- year benchmark finishing at 1.06%, up by 15 basis points (bps).

In Asia, US-dollar credit fared better than local-currency government bonds. In particular, despite significant new issues from Chinese property developers and concerns over China Fortune Land, Asian high-yield spreads tightened, helping it to become the best-performing dollar asset class among global credit markets in January. In January, we rolled our covered calls strategy, buying back the AS51 calls that we previously sold, making a small profit of A$20 per contract. This translated to about A$ 26,000 in total profits. We then sold the February AS51 contract. We also sold our position in Australian 10-year bond futures. While relatively attractive, Australian- dollar government bond yields are likely to track rising interest rates across developed markets as fiscal support drives the economic recovery.

In this environment, the diversification benefits of developed-market government bonds may be temporarily lessened, until they reach levels that compensate for the risk of rising inflation and growth expectations. Meanwhile, we raised about A$8 million to meet redemptions, by paring our positions across the board to maintain our asset allocations. An exception was our small position in the Aberdeen Standard SICAV I – China Onshore Bond Fund, which we liquidated in view of its rebound. With client inflows near the month-end, we initiated the Aberdeen Standard SICAV I – Frontier Market Bond Fund (Australian dollar hedged share class).

We also continued to tweak our equities exposure, rotating away from US industrials, Japanese and Indonesian equities, which have fared well amid the cyclical rebound of the past few months. We recycled the proceeds by raising our exposure to the Aberdeen Standard SICAV I – Global Dynamic Dividend Fund, increasing our exposure to global dividend-paying stocks that helps the fund achieve its income objectives. January’s technical correction was driven by short squeezes and hedge-fund deleveraging. Since then, hedge funds’ equity beta exposure have fallen back from elevated levels to their historical averages.

Looking ahead, we are still upbeat on risk assets, given the presence of key positive signposts. These include a more favourable macroeconomic and corporate earnings outlook, supportive fiscal policies and surplus liquidity conditions, as well as a faster vaccine rollout leading to falling Covid-19 cases in key developed markets. We remain cognizant of risks on multiple fronts, such as high valuations, new virus strains and a potential peak in the global liquidity and inflation outlook. Nonetheless, we do not think these risks are significant enough to derail the global recovery or bull market at this time. Therefore, we are overweight to risk in the portfolio, favouring equities and sub-investment grade credit. We have also reduced duration to mitigate against the risk of rising inflation.