abrdn Equity Income Trust plc

An update from our investment manager, Thomas Moore - 29 April 2022

Our investment process seeks to identify under-appreciated stocks that are set to benefit from positive changes in their corporate fundamentals. Investors can be irrational, losing sight of company fundamentals, especially during periods of macroeconomic disruption. This can create an abundance of opportunities that can play out in the long sweeps of more stable market conditions in the wake of this macroeconomic turmoil. We have constructed the portfolio using a high-conviction, index-agnostic approach. This means that we ignore index weightings and invest in our best ideas where we see the greatest total return. We see a benefit to shareholders over time from investing in small- and mid-cap stocks where inefficiencies are most prevalent, given the lack of research analysts covering these stocks. The current period of higher inflation is transforming the backdrop against which we are investing. With commodity prices and bond yields rising, it is becoming clearer that new stocks and sectors are taking over market leadership. In order to be capable of pivoting successfully in these changing market conditions, it is essential to follow a process that is dynamic – constantly focusing on change in company fundamentals and investing right across the UK equity market. We are identifying companies with strong cash flows, driving growth in dividends. We have consciously positioned the portfolio in stocks and sectors that have the most attractive dividend growth. As we enter more inflationary conditions, we are finding companies that we believe can help reduce the impact of the rising cost of living. Higher inflation is a function of higher input prices, such as rising oil prices and commodity prices, higher interest rates and higher wages. We believe that there are certain sectors that will actually benefit from this environment, specifically financials and resources.