The investment trust industry has seen no shortage of merger activity in recent years, with at least 20 completed since the start of 2023 – and there is little sign of a slowdown for that trend in 2026.
However, while most amount to the effective takeover of a struggling trust by a more successful counterpart, the merger between Shires Income (SHRS) and its stablemate Aberdeen Equity Income Trust (AEI) that took place in March was a very different affair.
As well as being run by the same investment house, these two long-established trusts both had a similar focus on hunting out undervalued businesses in the UK equity income arena; they had similar investment objectives and considerable overlap in their portfolios. And importantly, both also had strong track records over both long and short-term perspectives and were trading recently at a premium to net asset value rather than a discount.
All that common ground made for a relatively simple merger process. As co-manager Iain Pyle observes: “Both trusts were working well already, so there was no need to reinvent the wheel. This was a merger borne of strength rather than necessity – we are better together.”
A better deal for shareholders
The initiative was driven by both boards’ belief that uniting the two trusts presented an opportunity to create a larger, more robust and cost-effective vehicle that will stand shareholders in good stead.
“The combination aims to deliver several key benefits: greater scale, improved liquidity and lower ongoing costs. Those savings help support dividend sustainability and allow the enlarged trust to remain competitive in the UK equity income sector,” adds Pyle.
The newly merged trust, with a market capitalisation of just over £300m, retains Aberdeen Equity Income Trust’s name, but is jointly managed by the two managers, Pyle (who previously oversaw SHRS) and Thomas Moore of AEI. Crucially, its primary focus continues to be on generating a generous income for shareholders while achieving capital growth over the longer term.
However, there were of course some minor differences in the way SHRS and AEI operated prior to merger, and the process of coming together has enabled the managers to assess and incorporate the strongest features unique to each trust.
Thus, AEI’s hallmark progressive dividend policy – a key factor for many income investors – remains very much in play, ensuring that the new trust can prioritise its 25- year record of dividend growth and retain its prized status as one of the Association of Investment Companies’ ‘dividend heroes’.
A broader choice of holdings
Meanwhile, certain elements of SHRS’ investment policy have been built into the merger. SHRS operated within a broader investment universe which included some exposure to both non-UK equities and fixed income assets in the form of preference shares; the new-look AEI has the capacity to hold up to around 20% of the portfolio in each case.
As Moore points out, the wealth of takeovers among listed businesses over recent years means the number of investable companies in the UK market is dwindling, so this is a real advantage. “The fact that we can apply our value-focused investment process to European and fixed income markets gives us new perspectives and better opportunities,” he says.
A key factor in the smooth integration of the two trusts has been the fact that the same investment process – known within Aberdeen as ‘Focus on Change’ – was followed by both Pyle and Moore for their trusts before they became co-managers and continues to be used for AEI now.
That shared means of management not only fed into the high degree of common ground between the portfolios of the two trusts before they merged but means there has been minimal disruption to the investment style or way of working since then.
“Where differences between the two portfolios existed, we have been taking a careful, measured approach to aligning them, making changes only where it adds value,” Pyle notes.
A shared investment process
How does the Focus on Change approach work? “The aim is to identify businesses where change and turnaround is happening and things are getting better, but where those improvements have not been factored into the share price,” Moore explains.
The most interesting companies are those that have earnings momentum and are generating a lot of cash that can be returned to shareholders as dividends; as their metrics improve and start to be recognised by the market, the portfolio also benefits from capital gains as the shares are re-rated.
Moore stresses that AEI’s portfolio remains “index agnostic”, strongly focused on individual stock picking and with weightings to particular sectors and parts of the market determined principally by where the managers have most conviction.
Thus, although the FTSE 100 makes up more than 80% of the UK stock market, it accounts for only around 50% of AEI’s portfolio. “That’s a reflection of the parts of the market where we are finding lots of strong value-focused ideas,” he adds.
“We hope it shows the benefit of good stock selection based on research and capital analysis, selected for strong reasons which then materialise, enabling us to deliver both income and capital.
“That’s what we were both doing successfully before the merger, with attractive and quite similar returns over one, three and five years, which I think underscores the fact that we share a very similar investment philosophy.”
AEI currently yields more than 6% and is sitting on a small discount. As the new regime beds in for the larger, more cost-effective trust, the managers are confident that the portfolio will continue to deliver strongly for its shareholders.
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Important information
Risk factors you should consider prior to investing in Aberdeen Equity Income Trust:
- 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 results.
- Investment in the Company may not be appropriate for investors who plan to withdraw their money within 5 years.
- The Company may borrow to finance further investment (gearing). The use of gearing is likely to lead to volatility in the Net Asset Value (NAV) meaning that any movement in the value of the company’s assets will result in a magnified movement in the NAV.
- The Company may accumulate investment positions which represent more than normal trading volumes which may make it difficult to realise investments and may lead to volatility in the market price of the Company’s shares.
- The Company may charge expenses to capital which may erode the capital value of the investment.
- The Company invests in smaller companies which are likely to carry a higher degree of risk than larger companies.
- Movements in exchange rates will impact on both the level of income received and the capital value of your investment.
- There is no guarantee that the market price of the Company’s shares will fully reflect their underlying Net Asset Value.
- As with all stock exchange investments the value of the Company’s shares purchased will immediately fall by the difference between the buying and selling prices, the bid-offer spread. If trading volumes fall, the bid-offer spread can widen.
- Specialist funds which invest in small markets or sectors of industry are likely to be more volatile than more diversified trusts.
- Yields are estimated figures and may fluctuate; there are no guarantees that future dividends will match or exceed historic dividends and certain investors may be subject to further tax on dividends.
The Aberdeen Equity Income Trust Key Information Document can be obtained here.
Discrete performance (%)
| 31/03/26 | 31/03/25 | 31/03/24 | 31/03/23 | 31/03/22 | |
| Share Price | 25.5 | 26.1 | (9.0) | (3.7) | 18.6 |
| NAV | 31.1 | 13.7 | 0.1 | (6.9) | 11.1 |
| FTSE All-Share Index | 21.5 | 10.5 | 8.4 | 2.9 | 13.0 |
Source: Aberdeen, total returns. The percentage growth figures are calculated over periods on a mid to mid basis. NAV total returns are calculated on a cum-income basis.
Past performance is not a guide to future results.