Analyzing AGD's Performance to Determine AOD's Value

The abrdn Global Dynamic Dividend fund (AGD) has a 1-year total return of +45.5%, making it the top performer among similar funds. If AGD can achieve a premium of +13.6%, the article suggests that the abrdn Global Opportunities Dividend fund (AOD) should trade at a similar premium.

The abrdn Global Dynamic Dividend fund (AGD) has been an exceptional performer, achieving a remarkable 1-year total return of +45.5%, making it the top fund in its category. However, the fund's success raises an intriguing question: if AGD can command a premium of +13.6%, why does the abrdn Global Opportunities Dividend fund (AOD) trade at a -5.5% discount?

Both AGD and AOD have virtually identical portfolios and weightings, with only minor differences in their holdings. This similarity is evident in their NAV performances over the past year, which are nearly indistinguishable If AGD Can Rise To A +13.6% Premium, What Should AOD Trade At?^[1]. Despite this, AGD's market price has significantly outpaced AOD's, leading to a substantial valuation gap.

The primary reason for this discrepancy is AGD's smaller size. With $288 million in net assets and 24.8 million shares outstanding, AGD is much more susceptible to price movements compared to AOD, which has $1,055 million in assets and 105 million shares outstanding. This size difference makes it easier to influence AGD's market price, leading to its higher premium If AGD Can Rise To A +13.6% Premium, What Should AOD Trade At?^[1].

However, this valuation gap presents an opportunity for savvy investors. If institutional investors recognize the potential undervaluation of AOD while appreciating its higher yield, they could benefit from swapping into AOD from AGD. Even if AOD's market price were to reach par valuation (0%), it would still be significantly undervalued compared to AGD while offering a much higher market yield.

In conclusion, while AGD's premium can be attributed to its smaller size and higher price sensitivity, AOD's discount presents a compelling case for further analysis. Investors should consider the fund's performance, portfolio composition, and potential for valuation reversion when evaluating their investment strategies.