Dan Buchanan: Welcome to the latest in our Aberdeen Standard Investments Closed-End Fund podcast series, where we catch up with our closed-end portfolio managers and gain some perspective on these complex market conditions. Today we are focusing on global equities, with the Manager of the Aberdeen Total Dynamic Dividend Fund and the Global Dynamic Dividend Fund, ticker symbols AOD and AGD respectively Mr. Josh Duitz. Good morning, Josh.
Josh Duitz: Good morning, Dan. How are you?
Dan Buchanan: Good. Thank you. Thanks for joining us from New York. Hope all is well. Let's begin with your outlook on dividends and global equities in general, after 12 plus months of COVID-19.
Josh Duitz: I think it's important to take a step back and understand what happened to dividends during 2020. We saw globally listed companies, dividends were down about 12% in 2020 versus 2019, and it varied across regions. In the US, for instance, dividends were actually up about 2% where in Europe x UK, they were down roughly 30%, UK themselves down over 40% of dividends.
I think there's a few things that happens. Number one, in the US companies tend to buy back a lot more shares of stock. They really stopped buying back shares, especially in the second quarter and maintain their dividends. Then slowly throughout the year we started to see companies slowly start to repurchase shares, that's really what happened. It's really a very poor year in 2020 for dividends.
Saying all of that, company's [inaudible 00:08:38] is still paid roughly $1.3 trillion in dividends in 2020. Now looking at 2021, if you look at in the United States, companies have the highest level of cash on their balance sheet since post-GFC period, so a huge amount of cash there, which will support a rebound in capex and increase in dividends, we believe. We do think that dividends will be higher in 2021 versus 2020, supported by all of the cash on their balance sheets. We're starting to see the economy's rebound as well. That's really supported by a tremendous amount of fiscal and monetary stimulus.
In the US, we just passed a $1.9 trillion stimulus package, which is about 9% of GDP. To put that in perspective, during the GFC we had 0.8 trillion of stimulus being passed, so less than half of the latest bill. If you look at the total amount we passed as $5.1 trillion of stimulus since this crisis began, a tremendous amount of fiscal stimulus and then you have the monetary stimulus, when we have extremely low interest rates globally, and the FED, the BOJ, the ECB, all increasing the money supply. A lot of fiscal and monetary stimulus, which we believe will support the economies.
Then you throw in the fact that economies are now opening up because more and more people are being vaccinated, Israel being the model of vaccinating over 50% of their country, the US and UK are now on track. We think Europe is lagging, but will still open up shortly. We think there's a good chance that dividends will rise and economies will be strong for the next couple of years.
Dan Buchanan: That really is an amazing number Josh that you mentioned on the total stimulus versus prior stimulus events. I'm just curious, what's the mood among companies and management in particular that you've been speaking with around the globe?
Josh Duitz: I think basically companies are somewhat cautiously optimistic. I know that's somewhat overused, but they have reason to be. I think it's interesting because a lot of companies used this crisis really to cut costs and improve their balance sheets. We should see margin expansion for some companies, because it really had a focus on the cost, because remember, back a year ago, in March of last year, no one really understood how long this would last, the consequences of it. You really had to be very vigilant in cutting cost, so I think that makes companies better and improve for the long run, so you're able to cut out some of the fat. I think that's a positive. You're starting to see that even in the dividend side.
I mentioned earlier -- had companies overall, globally, dividends are down about 12%. But if you look at the fact that they’re down 12%, now we're starting to see companies increase dividends again and [inaudible 00:11:53] dividends, which are quite a number of special dividends in the first quarter. Partly that was company sound businesses and using the cash to pay dividends, but also some makeup dividends. I do think companies are hopeful, and I think especially once the economy's really started opening up, and people go out and spending money again.
Dan Buchanan: Thank you. Have you reshaped the portfolio at all in light of these changing environments?
Josh Duitz: We definitely do reshape it constantly. We're constantly updating the portfolio but we do generally invest in companies for the long term with good fundamentals. We do take advantage of [inaudible 00:12:36], right, when companies reach their price targets, we'll look to sell them and when we think they become expensive. The one thing that we really have looked for over the past three, four, five months are companies that we believe that should benefit from the reopening. We're really either -- their valuations did not reflect the fact that they should participate in the reopening. Those are the type of companies that we would look for.
Now some companies obviously were way ahead of the curve, and their stock prices rebounded beforehand. But we found plenty of companies that we believe should be beneficiaries of the reopening that were good companies that were sold down unfairly in our opinion, and we look to buy those. On the reverse other companies who benefited from the crisis, we would look to sell because we felt some of their valuations were higher. Once everything reopens, they no longer would be strictly the beneficiary of that.
Dan Buchanan: Josh, we're in a very low interest rate environment and lot of cheap money for borrowing out there. I'm just curious on funds current position on leverage, or gearing, and if you do apply it, and you've been able to use it to your advantage?
Josh Duitz: In general, we try not to lever the fund. I think that you will see a very small amount of leverage in a AOD and AGD at points generally under 5%. I don't remember the last time we were above 5%. In general, it's 1-2-3% and that's part of the dividend capture, despite the low environment and I agree when markets are going up everyone says we should totally be leveraged and everything's great. But markets are volatile, and I think what happened, the good example what happened last year, going into the beginning of 2020, when everything seemed rosy and the markets were great. All of a sudden Coronavirus hit, if we weren't leveraged, we would have been forced sellers, and it would have destroyed capital for shareholders.
In general, we don't like to leverage. We believe that investors looking for global dividends are -- want more conservative approach to it, so those are the types of companies we're trying to invest in. We try to limit the volatility of the fund and leverage just at volatility. It's great when everything's working out and you've low interest rates, markets are moving straight up. But when you do see a downturn, it does negatively impact the portfolio and investors, so we generally don't have leverage. Again, if we do it's 1 to 5%.
Dan Buchanan: Right. Yeah, you mentioned that being a forced seller is something you don't want to be in a position to be in. This brings me to sort of switching gears a bit. AOD and AGD are a closed-end fund vehicle in the structure and from your perspective as a portfolio manager, how does the closed-end fund vehicle itself help you to effectively manage a portfolio of global equities?
Josh Duitz: It works in a few different ways. As you mentioned, I'm not a forced seller when we have withdrawals and I don't have to have cash on the balance sheet for withdrawals. Then when the markets going up and you see inflows you're not constantly chasing the market. That's one way mended to the advantage of closed-end fund. Also the other advantage is this is a closed-end dividend paying fund and that really allows me to prepare and make sure we're able to pay steady consistent dividend because I don't have to worry about the inflows and outflows and how many shares we have at a certain point and [Audio Cut] amount of dividends you need, then changes. This way, I know the number of shares outstanding consistently, we could plan for the dividend and make sure our investors are receiving a dividend throughout the year.
Dan Buchanan: Finally, Josh, what would you say to clients to give them comfort that they should invest in global equities today?
Josh Duitz: We love the diversification of global equities. If you look at the US and things seem to be going well right now, we're still in a point, right, we expected strong GDP, but really was spurred by a tremendous amount of fiscal and monetary stimulus. When we look at it, we expected deficit to increase as a percentage of GDP this year, despite GDP growing between deficits been in the trade and budget deficits as a percentage of GDP are at the highest level ever since the US went off the gold standard. Right between deficits could lead to depreciation of the dollar, which could have a longer term impact on inflation, interest rates, stocks, so we think being globally diversified is very important, especially at this point in the cycle of -- and what's going on in the United States.
We still like the United States, we sell positions in the United States, but we think having a diversified portfolio as we're opening up, it will be a benefit to our investors. If you think about --- as I mentioned, Israel, the US, the UK, the first economies probably fully open eventually, but then you have Europe lagging behind so you want -- to me, I want to invest and be diversified globally across not only countries, but also sectors. That's where we really like taking a global approach to investing.
Dan Buchanan: Thank you Josh for your insights today, and thank you to our listeners for tuning in. You can find out more about the fund at www.aberdeenaod.com and www.aberdeenagd.com. I am Dan Buchanan with Aberdeen Standard Investments. Do look out for future episodes.
