N-CSRS 1 feo_ncsrs.htm SEMI-ANNUAL REPORT

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSR/A

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-21905

First Trust/Aberdeen Emerging Opportunity Fund
(Exact name of registrant as specified in charter)

120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Address of principal executive offices) (Zip code)

W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Name and address of agent for service)

Registrant’s telephone number, including area code: (630) 765-8000

Date of fiscal year end: December 31

Date of reporting period: June 30, 2022

Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.

Item 1. Reports to Stockholders.

(a)

The Report to Shareholders is attached herewith.

First Trust/abrdn

Emerging Opportunity Fund (FEO)

(formerly known as First Trust/Aberdeen

Emerging Opportunity Fund)

Semi-Annual Report

For the Six Months Ended

June 30, 2022

Table of Contents

First Trust/abrdn Emerging Opportunity Fund (FEO)

Semi-Annual Report

June 30, 2022

Shareholder Letter	2
At a Glance	3
Portfolio Commentary	5
Portfolio of Investments	10
Statement of Assets and Liabilities	19
Statement of Operations	20
Statements of Changes in Net Assets	21
Statement of Cash Flows	22
Financial Highlights	23
Notes to Financial Statements	24
Additional Information	34

Table of Contents

Caution Regarding Forward-Looking Statements

This report contains certain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding the goals, beliefs, plans or current expectations of First Trust Advisors L.P. (“First Trust” or the “Advisor”) and/or abrdn Inc. (“abrdn” or the “Sub-Advisor”) and their respective representatives, taking into account the information currently available to them. Forward-looking statements include all statements that do not relate solely to current or historical fact. For example, forward-looking statements include the use of words such as “anticipate,” “estimate,” “intend,” “expect,” “believe,” “plan,” “may,” “should,” “would” or other words that convey uncertainty of future events or outcomes.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of First Trust/abrdn Emerging Opportunity Fund (the “Fund”) to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are cautioned not to place undue reliance on these forward-looking statements, which reflect the judgment of the Advisor and/or Sub-Advisor and their respective representatives only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof.

Managed Distribution Policy

The Board of Trustees of the Fund has approved a managed distribution policy for the Fund (the “Plan”) in reliance on exemptive relief received from the Securities and Exchange Commission which permits the Fund to make periodic distributions of long-term capital gains more frequently than otherwise permitted with respect to its common shares subject to certain conditions. Under the Plan, the Fund currently intends to pay a quarterly distribution in the amount of $0.25 per share. A portion of this quarterly distribution may include realized capital gains. This may result in a reduction of the long-term capital gain distribution necessary at year end by distributing realized capital gains throughout the year. The annual distribution rate is independent of the Fund’s performance during any particular period but is expected to correlate with the Fund’s performance over time. Accordingly, you should not draw any conclusions about the Fund’s investment performance from the amount of any distribution or from the terms of the Plan. The Board of Trustees may amend or terminate the Plan at any time without prior notice to shareholders.

Performance and Risk Disclosure

There is no assurance that the Fund will achieve its investment objective. The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in the Fund. See “Principal Risks” in the Additional Information section of this report for a discussion of certain other risks of investing in the Fund.

Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and common share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.

The Advisor may also periodically provide additional information on Fund performance on the Fund’s web page at www.ftportfolios.com.

How to Read This Report

This report contains information that may help you evaluate your investment in the Fund. It includes details about the Fund and presents data and analysis that provide insight into the Fund’s performance and investment approach.

By reading the portfolio commentary by the portfolio management team of the Fund, you may obtain an understanding of how the market environment affected the Fund’s performance. The statistical information that follows may help you understand the Fund’s performance compared to that of relevant market benchmarks.

It is important to keep in mind that the opinions expressed by personnel of First Trust and abrdn are just that: informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this report. The material risks of investing in the Fund are spelled out in the prospectus, the statement of additional information, this report and other Fund regulatory filings.

Page 1

Table of Contents

Shareholder Letter

First Trust/abrdn Emerging Opportunity Fund (FEO)

Semi-Annual Letter from the Chairman and CEO

June 30, 2022

Dear Shareholders,

First Trust is pleased to provide you with the semi-annual report for the First Trust/abrdn Emerging Opportunity Fund (the “Fund”), which contains detailed information about the Fund for the six months ended June 30, 2022.

The trillions of dollars of stimulus funneled into the U.S. financial system by the Federal government throughout the bulk of the coronavirus (“COVID-19”) pandemic was effective in bolstering economic activity, as reflected by some impressive gross domestic product (“GDP”) statistics. It also fueled inflation. I will touch on that angle as well. Data from the U.S. Bureau of Economic Analysis indicates that annualized real GDP growth rates over the four quarters comprising 2021 were 6.3%, 6.7%, 2.3% and 6.9%, respectively. It appears, however, that the upside from those stimulus dollars may be waning. In the first two quarters of 2022, the U.S. economy contracted. Real GDP declined by an annualized 1.6% in the first quarter and declined by an annualized 0.9% in the second quarter. Why the downturn? Well, the lion’s share of the stimulus programs for individuals ended in September 2021. The war between Russia and Ukraine, which commenced in late February 2022, China’s COVID-19 shutdown this year and the ongoing supply chain bottlenecks have also provided a drag on the global economy and securities markets, in my opinion. While the standard definition of a recession is two consecutive quarters of negative GDP growth, the official arbiter of declaring recessions in the U.S. belongs to the National Bureau of Economic Research, and it factors in additional economic indicators in its evaluation process. Even if we were to experience a recession, it does not necessarily mean it will be deep in scope. Currently, the Federal Reserve (the “Fed”) is still hoping to orchestrate a soft landing for the economy, though it admits it will be challenging.

In addition to the recent decline in economic activity, the financial media is paying a good deal of attention to the inverted yield curve in the Treasury market, particularly the spread between the yields on the 2-Year and 10-Year Treasury Note (“T-Note”). As of July 27, 2022 the closing yield on the 2-Year T-Note was 3.00%, 21 basis points (“bps”) above the 2.79% yield on the 10-Year T-Note. The current inversion has only been in play in earnest since July 5, 2022. Yields on shorter-maturity bonds should be lower than those further out on the curve. For the 30-year period ended July 27, 2022, the average yield on the 10-Year T-Note was 113 bps higher than the average yield on the 2-Year T-Note. Historically, such inversions have portended that a recession is likely to arrive in the next 12-24 months. At its meeting on July 27, 2022, the Fed raised the Federal Funds target rate by 75 bps to combat the spike in inflation. The target rate currently sits at 2.50%, marking the upper bound of its 2.25% to 2.50% range. The Fed’s next meeting is scheduled for September 20-21, 2022.

In the current climate, the number one goal is to tame inflation. The Fed has made it clear that it is committed to doing so. The Consumer Price Index stood at a trailing 12-month rate of 9.1% in June 2022, its highest level since 1981. Surging inflation is the number one concern of Americans. It is certainly going to be a hot button issue in the upcoming mid-term elections in November. A recent CNN poll revealed that 75% of Americans consider inflation their top economic concern and only 25% approve of President Joe Biden’s efforts to curtail it. This dovetails into another concern: the markets. With respect to returns, on a year-to-date and 12-month basis, all the major domestic and foreign stock and bond indices were sitting in negative territory, based on their respective total returns through June 30, 2022. Sell-offs are a natural part of market cycles. We all know that prices do not go up in a straight line. As previously noted, the Fed, the economy and the markets are battling some significant headwinds. The good news is we know what they are. Suffice it to say, it will take some time to remedy them. Stay the course!

Thank you for giving First Trust the opportunity to play a role in your financial future. We value our relationship with you and will report on the Fund again in six months.

Sincerely,

James A. Bowen

Chairman of the Board of Trustees

Chief Executive Officer of First Trust Advisors L.P.

Page 2

Table of Contents

First Trust/abrdn Emerging Opportunity Fund (FEO)

“AT A GLANCE”

As of June 30, 2022 (Unaudited)

Fund Statistics
Symbol on New York Stock Exchange	FEO
Common Share Price	$8.80
Common Share Net Asset Value (“NAV”)	$10.06
Premium (Discount) to NAV	(12.52)%
Net Assets Applicable to Common Shares	$50,224,003
Current Quarterly Distribution per Common Share⁽¹⁾	$0.2500
Current Annualized Distribution per Common Share	$1.0000
Current Distribution Rate on Common Share Price⁽²⁾	11.36%
Current Distribution Rate on NAV⁽²⁾	9.94%

Common Share Price & NAV (weekly closing price)

Performance
			Average Annual Total Returns
	6 Months Ended 6/30/22	1 Year Ended 6/30/22	5 Years Ended 6/30/22	10 Years Ended 6/30/22	Inception (8/28/06) to 6/30/22
Fund Performance⁽³⁾
NAV	-23.85%	-29.34%	-1.05%	1.63%	4.99%
Market Value	-29.70%	-35.53%	-1.89%	1.41%	3.80%
Index Performance
Blended Index⁽⁴⁾	-19.22%	-24.08%	-0.83%	1.33%	4.12%
Bloomberg Global Emerging Markets Index	-18.50%	-19.81%	-0.85%	2.05%	4.39%
FTSE All World Emerging Market Index	-14.84%	-21.25%	3.57%	3.92%	4.88%

Fund Allocation	% of Net Assets
Common Stocks	45.1%
Foreign Sovereign Bonds and Notes	39.0
Foreign Corporate Bonds and Notes	22.4
Corporate Bonds and Notes	0.5
Outstanding Loan	(11.5)
Net Other Assets and Liabilities⁽⁵⁾	4.5
Total	100.0%

⁽¹⁾	Most recent distribution paid or declared through June 30, 2022. Subject to change in the future.

⁽²⁾	Distribution rates are calculated by annualizing the most recent distribution paid or declared through the report date and then dividing by Common Share Price or NAV, as applicable, as of June 30, 2022. Subject to change in the future.

⁽³⁾

Total return is based on the combination of reinvested dividend, capital gain, and return of capital distributions, if any, at prices obtained by the Dividend Reinvestment Plan and changes in NAV per share for NAV returns and changes in Common Share Price for market value returns. Total returns do not reflect sales load and are not annualized for periods of less than one year. Past performance is not indicative of future results.

⁽⁴⁾

Blended Index consists of the following: JPMorgan Emerging Markets Bond Index - Global Diversified (32.5%); JPMorgan Government Bond Index - Emerging Markets Diversified (32.5%); MSCI Emerging Markets Index (35.0%). The Blended Index returns are calculated by using the monthly return of the three indices during each period shown above. At the beginning of each month the three indices are rebalanced to a 32.5%, 32.5%, and 35.0% ratio, respectively, to account for divergence from that ratio that occurred during the course of each month. The monthly returns are then compounded for each period shown above, giving the performance for the Blended Index for each period shown above.

⁽⁵⁾	Includes forward foreign currency contracts.

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Table of Contents

First Trust/abrdn Emerging Opportunity Fund (FEO)

“AT A GLANCE” (Continued)

As of June 30, 2022 (Unaudited)

Credit Quality⁽⁶⁾	% of Total Fixed-Income Investments
AA-	2.7%
A+	5.7
A	1.1
A-	5.0
BBB+	10.8
BBB	7.6
BBB-	5.0
BB+	2.3
BB	22.5
BB-	11.9
B+	8.4
B	3.4
B-	5.4
CCC+	5.1
CCC	0.6
CC	0.3
C	0.5
Not Rated	1.7
Total	100.0%

Top 10 Countries⁽⁷⁾	% of Total Investments
China	13.9%
Brazil	9.4
Mexico	8.4
South Africa	8.0
India	8.0
Taiwan	4.8
South Korea	3.9
Indonesia	3.9
Saudi Arabia	3.3
Oman	2.8
Total	66.4%

Top Ten Holdings	% of Total Investments
Republic of South Africa Government Bond, 9.00%, 1/31/40	5.3%
Brazil Notas do Tesouro Nacional, Series F, 10.00%, 1/01/27	4.8
Taiwan Semiconductor Manufacturing Co., Ltd.	3.5
Samsung Electronics Co., Ltd. (Preference Shares)	2.7
Tencent Holdings Ltd.	2.6
Malaysia Government Bond, 3.89%, 3/15/27	2.5
Mexican Bonos, 5.75%, 3/05/26	2.5
Alibaba Group Holding Ltd.	2.2
Indonesia Treasury Bond, 8.38%, 3/15/34	2.1
Saudi Arabian Oil Co., 2.88%, 4/16/24	2.0
Total	30.2%

Industry Classification	% of Total Investments
Sovereigns	36.4%
Banks	10.6
Semiconductors & Semiconductor Equipment	5.1
Integrated Oils	4.2
Internet & Direct Marketing Retail	3.4
Technology Hardware, Storage & Peripherals	2.7
Interactive Media & Services	2.6
Exploration & Production	2.5
Metals & Mining	2.2
Insurance	2.1
Beverages	1.9
Chemicals	1.8
Electrical Equipment	1.5
Thrifts & Mortgage Finance	1.4
Utilities	1.3
Specialty Retail	1.3
Financial Services	1.2
Electronic Equipment, Instruments & Components	1.1
IT Services	1.1
Refining & Marketing	1.0
Capital Markets	1.0
Wireless Telecommunication Services	0.8
Oil, Gas & Consumable Fuels	0.7
Industrial Other	0.7
Life Sciences Tools & Services	0.7
Personal Products	0.7
Paper & Forest Products	0.6
Household Durables	0.6
Electric Utilities	0.6
Food & Beverage	0.5
Automobiles	0.5
Real Estate Management & Development	0.5
Wireline Telecommunications Services	0.5
Power Generation	0.5
Real Estate	0.5
Software & Services	0.5
Construction Materials	0.4
Life Insurance	0.4
Food Products	0.4
Textiles, Apparel & Luxury Goods	0.4
Construction & Engineering	0.4
Government Development Banks	0.4
Transportation & Logistics	0.4
Transportation Infrastructure	0.3
Road & Rail	0.3
Food & Staples Retailing	0.3
Oil & Gas Services & Equipment	0.3
Software	0.2
Entertainment	0.2
Retail - Consumer Staples	0.2
Railroad	0.1
Total	100.0%

⁽⁶⁾

The credit quality and ratings information presented above reflects the ratings assigned by one or more nationally recognized statistical rating organizations (NRSROs), including S&P Global Ratings, a subsidiary of S&P Global Inc., Moody’s Investors Service, Inc., Fitch Ratings or a comparably rated NRSRO. For situations in which a security is rated by more than one NRSRO and the ratings are not equivalent, the highest ratings are used. Sub-investment grade ratings are those rated BB+/Ba1 or lower. Investment grade ratings are those rated BBB-/Baa3 or higher. The credit ratings shown relate to the creditworthiness of the issuers of the underlying securities in the Fund, and not to the Fund or its shares. Credit ratings are subject to change.

⁽⁷⁾	Fixed-income portfolio securities are included in a country based upon their underlying credit exposure as determined by abrdn Inc., the sub-advisor.

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Table of Contents

Portfolio Commentary

First Trust/abrdn Emerging Opportunity Fund (FEO)

Semi-Annual Report

June 30, 2022 (Unaudited)

Advisor

First Trust Advisors L.P. (“First Trust” or the “Advisor”) serves as the investment advisor to the First Trust/abrdn Emerging Opportunity Fund (the “Fund”). First Trust is responsible for the ongoing monitoring of the Fund’s investment portfolio, managing the Fund’s business affairs and providing certain administrative services necessary for the management of the Fund.

Sub-Advisor

abrdn Inc. (“abrdn” or the “Sub-Advisor”), a Securities and Exchange Commission registered investment advisor, is an indirect wholly-owned subsidiary of abrdn plc. abrdn plc is a publicly-traded global provider of long-term savings and investments listed on the London Stock Exchange, managing assets for institutional and retail clients from offices around the world.

Portfolio Management Team

Investment decisions for the Fund are made by abrdn using a team approach and not by any one individual. By making team decisions, abrdn seeks to ensure that the investment process results in consistent returns across all portfolios with similar objectives. abrdn does not employ separate research analysts. Instead, abrdn’s investment managers combine analysis with portfolio management. Each member of the team has sector and portfolio responsibilities such as day-to-day monitoring of liquidity. The overall result of this matrix approach is a high degree of cross-coverage, leading to a deeper understanding of the securities in which abrdn invests. Below are the members of the team with significant responsibility for the day-to-day management of the Fund’s portfolio.

Equity Management Team

Devan Kaloo

Global Head of Public Markets/Global Head of Equities

Joanne Irvine

Deputy Head, Global Emerging Markets Equity

Nick Robinson

Senior Investment Director, Global Emerging Markets Equity

Stephen Parr

Investment Director, Global Emerging Markets Equity

Fixed-Income Management Team

Brett Diment

Head of Global Emerging Market Debt

Kevin Daly

Investment Director, Emerging Market Debt

Edwin Gutierrez

Head of Emerging Market Sovereign Debt

Max Wolman

Investment Director, Emerging Market Debt

Commentary

First Trust/abrdn Emerging Opportunity Fund

The Fund’s investment objective is to provide a high level of total return. The Fund pursues its investment objective by investing at least 80% of its Managed Assets in a diversified portfolio of equity and fixed-income securities of issuers in emerging market countries. “Managed Assets” means the total asset value of the Fund minus the sum of the Fund’s liabilities other than the principal amount of borrowings, if any. There can be no assurance that the Fund will achieve its investment objective. The Fund may not be appropriate for all investors.

Fund Recap

The Fund had a net asset value (“NAV”) total return⁽¹⁾ of -23.85% and a market value total return of -29.70% for the six-month period ended June 30, 2022 compared to the Blended Index⁽²⁾ total return of -19.22% over the same period. In addition to the Blended Index, the Fund currently uses other indexes for comparative purposes. The total returns for the six-month period ended June 30, 2022 for these indexes were as follows: the Bloomberg Global Emerging Markets Index returned -18.50% and the FTSE All World Emerging Market Index was -14.84%. The use of forwards had a de minimis impact on Fund performance.

⁽¹⁾

Total return is based on the combination of reinvested dividend, capital gain and return of capital distributions, if any, at prices obtained by the Dividend Reinvestment Plan and changes in NAV per share for NAV returns and changes in Common Share Price for market value returns. Total returns do not reflect sales load and are not annualized for periods of less than one year. Past performance is not indicative of future results.

⁽²⁾

Blended Index consists of the following: JPMorgan Emerging Markets Bond Index – Global Diversified (32.5%); JPMorgan Government Bond Index – Emerging Markets Diversified (32.5%); MSCI Emerging Markets Index (35.0%). The Blended Index returns are calculated by using the monthly return of the three indices during the period shown above. At the beginning of each month the three indices are rebalanced to a 32.5%, 32.5%, and 35.0% ratio, respectively, to account for divergence from that ratio that occurred during the course of each month. The monthly returns are then compounded for the period shown above, giving the performance for the Blended Index for the period shown above.

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Table of Contents

Portfolio Commentary (Continued)

First Trust/abrdn Emerging Opportunity Fund (FEO)

Semi-Annual Report

June 30, 2022 (Unaudited)

An important factor impacting the return of the Fund relative to its Blended Index was the Fund’s use of financial leverage through the use of bank borrowings. The Fund uses leverage because its managers believe that, over time, leverage provides opportunities for additional income and total return for common shareholders. However, the use of leverage can also expose common shareholders to additional volatility. For example, as the prices of securities held by the Fund decline, the negative impact of the evaluation changes on Common Share NAV and Market Value total return is magnified by the use of leverage. Conversely, leverage may enhance Common Share returns during periods when the prices of securities held by the Fund generally are rising. Unlike the Fund, the Bloomberg Global Emerging Markets Index, the FTSE All World Emerging Market Index and the components of the Blended Index are not leveraged. Leverage had a negative impact on the performance of the Fund over this reporting period.

Performance
			Average Annual Total Returns
	6 Months Ended 6/30/22	1 Year Ended 6/30/22	5 Years Ended 6/30/22	10 Years Ended 6/30/22	Inception (8/28/06) to 6/30/22
Fund Performance⁽¹⁾
NAV	-23.85%	-29.34%	-1.05%	1.63%	4.99%
Market Value	-29.70%	-35.53%	-1.89%	1.41%	3.80%
Index Performance
Blended Index⁽²⁾	-19.22%	-24.08%	-0.83%	1.33%	4.12%
Bloomberg Global Emerging Markets Index	-18.50%	-19.81%	-0.85%	2.05%	4.39%
FTSE All World Emerging Market Index	-14.84%	-21.25%	3.57%	3.92%	4.88%

Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance.

The Fund’s managed distribution policy (the “Plan”) permits the Fund to make periodic distributions of long-term capital gains as frequently as quarterly each tax year. The plan has no impact on the Fund’s investment strategy and may reduce the Fund’s NAV. However, the Advisor believes the policy helps maintain the Fund’s competitiveness and may benefit the Fund’s market price and premium/discount to the Fund’s NAV. Under the Plan, the Fund currently intends to continue to pay a recurring quarterly distribution in the amount of $0.25 per Common Share that reflects the distributable cash flow of the Fund. The Fund maintained its regular quarterly Common Share distribution of $0.25 per share for the six month period ended June 30, 2022. Based on the $0.25 per share quarterly Common Share distribution, the annualized distribution rate as of June 30, 2022 was 9.94% at NAV and 11.36% at market price. The final determination of the source and tax status of all 2022 distributions will be made after the end of 2022 and will be provided on Form 1099-DIV. The foregoing is not to be construed as tax advice. Please consult your tax advisor for further information regarding tax matters.

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Table of Contents

Portfolio Commentary (Continued)

First Trust/abrdn Emerging Opportunity Fund (FEO)

Semi-Annual Report

June 30, 2022 (Unaudited)

Fixed Income Commentary

Market Recap

For the first half of 2022, emerging markets (“EM”) were severely affected by a confluence of negative events, namely the war in Ukraine, rising global inflation and higher interest rates leading to tighter monetary policies around the world. There were also a number of defaults by both EM sovereign and corporate issuers such as Russia and Sri Lanka and several Chinese real estate companies following on from last year’s defaults of Evergrande and Kaisa Group Holdings Ltd. With tighter monetary conditions and a reversal of investor flows into EM debt (“EMD”) funds, the capital flight has highlighted some of the weaker credits, namely the higher yielding frontier credits in Africa such as Ghana, Tunisia and Kenya. The lack of investor demand for these types of credits has meant the various governments currently cannot rely on capital markets to fund their fiscal deficits and therefore need to find alternative sources such as the International Monetary Fund (“IMF”). JPMorgan, an index provider, along with other index providers decided to exclude Russia from their indices at the end of the first quarter of 2022. Russia exited the relevant JPMorgan Indices at a price of zero and any positions remaining in the Fund were marked near zero during the second quarter of 2022 as there was no market due to the heavy sanctions applied to the various Russian entities.

Performance Analysis

Unsurprisingly, both the hard currency and local currency markets produced negative returns during six-month period ended June 30, 2022, down -20.3% and -20.1%, respectively. In local currency markets the worst performing region was the Central Eastern European (“CEE”) countries such as Poland, Hungary, the Czech Republic and Romania which all saw dramatically higher inflation due to higher energy costs. The strongest region was Latin America where some of the currencies actually appreciated against the U.S. Dollar (“USD”) over the period such as the Brazilian Real, Uruguayan Peso and Mexican Peso. This was due to some of the countries not experiencing rising inflation over the year such as Uruguay or the Central Bank having started increasing interest rates last year such as in Brazil. In the hard currency space, there were several idiosyncratic stories where various sovereign bonds did very poorly, such as Ukraine due to the invasion by Russia. Sri Lanka defaulted on its debt obligations resulting in very weak bond prices and the Argentinian government’s heterodox policies resulted in bond weakness. El Salvador also underperformed the market due to President Bukele’s refusal to adopt an IMF program and instead relying on a Eurobond backed by Bitcoin to fund its fiscal deficit. In addition, any long duration bond did very poorly irrespective of its credit rating due to rising U.S. Treasuries. No sovereign USD market had a positive return over the same period, but the short-dated investment grade credits outperformed such as Croatia and Kuwait.

When excluding the leverage from the Fund, performance was in line with the return of the Blended Index with respect to the EMD holdings, however, due to the very negative market returns the impact of the leverage was a substantial detractor to the Fund’s performance. Drilling down into the various countries, Russia did not end up costing much in performance on a relative basis due to the Fund not holding any sovereign USD bonds which helped to offset the overweight in the local Ruble bonds. However, the overweight in Belarus USD did have a large negative impact on the portfolio as this country was also excluded from the JP Morgan indices due to its involvement in the war by allowing Russian troops to invade Ukraine using its borders. The overweight to Argentinian and Ukrainian USD bonds detracted from the Fund’s performance. Zero holdings in some of the weaker credits such as Sri Lanka, El Salvador and Pakistan helped the relative performance of the Fund. Credit selection was a big contributor to the Fund’s performance due to the Fund holding off-benchmark EM corporate USD bonds which, in some cases, significantly outperformed their respective sovereign bonds. A case in point is Nigeria where the sovereign bonds came under severe stress due to being long duration while the corporate bonds in Nigeria are much shorter duration. The Fund also owned some very short dated high-quality Kingdom of Saudi Arabian bonds which outperformed the broader market. In the local space, the large underweight to the CEE region was a plus for performance as was the overweight to Brazil. The zero holding in Chinese local bonds detracted from the Fund’s performance due to the relative stability in the local bond market. Off-benchmark holdings in India and Indonesian local bonds also helped the Fund’s performance as both countries had better returns than the local market index.

Market and Fund Outlook

It remains difficult to be hugely constructive on the asset class in the relatively short term, given the challenging macroeconomic backdrop. EMD is hardly immune to volatile commodity prices, divergent policy implementation from central banks or the socio-political pressures facing governments as citizens become more vocal about cost-of-living pressures. The global growth outlook remains a key focus for markets, with a recession looking more likely, in our opinion, given the pace of central bank intervention. However, it is worth acknowledging for the long-term outlook that spreads are near historic wides, corporates are demonstrating resilience in many instances and the IMF is engaging with sovereigns that are under the most distress. Ghana is the most recent example, with bonds jumping almost 10 points on news of a possible funding agreement. With investors sitting on relatively high cash balances, we expect to see some of this cash selectively put to work as opportunities present themselves. Nevertheless, we remain cautious for now given the volatility and tight liquidity conditions.

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Table of Contents

Portfolio Commentary (Continued)

First Trust/abrdn Emerging Opportunity Fund (FEO)

Semi-Annual Report

June 30, 2022 (Unaudited)

Equity Commentary

Market Recap

EM equities slumped over the six-month period ended June 30, 2022, though they fared better than developed markets. Geopolitical and macroeconomic concerns dominated investor sentiment as Russia’s invasion of Ukraine triggered a sell-off in global risk assets in February 2022. Already elevated commodity prices surged on fears of supply disruption, resulting in commodity-led inflation. Sentiment turned increasingly pessimistic as central banks ramped up their policy tightening trajectories, triggering fears of a global recession.

Against this backdrop, commodity exporters, barring Russia, were broadly resilient. Resource-rich Latin America and Middle Eastern oil-producing nations rallied as commodity prices rose, though they gave back some of their gains toward the end of the same period on mounting growth risks. In emerging Asia, Chinese equities outperformed as investor sentiment improved in the latter half, driven by strong fiscal and monetary policy support, easing Covid-related restrictions, relatively contained inflation and optimism surrounding potentially less aggressive regulatory crackdowns in the domestic technology sector. Conversely, technology-heavy markets in South Korea and Taiwan sold off on higher interest rates and growing recession fears.

Performance Analysis

Over the six-month period ended June 30, 2022, the Equity portion of the Fund fell by 23.60% in U.S. Dollar terms, underperforming the MSCI Emerging Markets Index’s decline of 17.47%.

Revaluing our Russian holdings in Novatek and Lukoil near zero in the first half of the period covered by this report was a material detractor. We took that decision due to stringent capital controls in Russia and stiff sanctions on Moscow from the West, which made it impossible to realize any value from our investments. Not holding former index heavyweight Gazprom was positive. Heading into the crisis, Russia had been a compelling bottom-up story in the emerging markets universe.

China detracted from the Fund’s performance during the six-month period ended June 30, 2022 as a flare-up in coronavirus (“COVID-19”) cases led to strict, but temporary lockdowns in major cities like Shanghai, which weighed on market sentiment. Relative performance improved over May and June 2022 as infection cases fell, eventually pushing the government towards reopening and easing restrictions across the country. However, strong returns from our Chinese consumer and renewable energy stocks were not enough to offset our overall underweight to China directly.

Elsewhere, a gradual tightening of the global interest rate environment triggered an ongoing rotation out of growth into value stocks. Meanwhile, compounding fears of an economic contraction worldwide led to concerns about slowing end-demand for consumption, consumer electronics and semiconductor chips. As a result, our technology and digital consumer holdings, including Sea Ltd., Samsung Electronics Co., Ltd., MercadoLibre, Inc., ASM International N.V. and ASML Holding N.V., were punished.

The surge in energy prices benefited oil-exporting countries in the Middle East, where the Fund does not have exposure. While share prices there saw some reversal between April and June 2022 on the back of volatile energy prices, the region still detracted from overall performance. Latin America initially benefited from higher commodity prices but lagged when prices pulled back. Nonetheless, the likes of Brazilian lender Banco Bradesco and stock exchange operator B3 S.A. as well as Mexican bank Grupo Financiero Banorte S.A.B. de C.V. and copper producer Grupo Mexico S.A.B. de C.V. added to the Fund’s relative performance.

On a more positive note, the non-benchmark exposure to Hong Kong proved favorable. Insurer AIA Group Ltd. and brewer Budweiser Brewing Co., APAC Ltd. rose on the improving outlook of the operating environments in both mainland China and Hong Kong. Chinese solar company LONGi Green Energy Technology Co., Ltd. was among the top stock contributors, aided by strong policy support for renewables and solid demand for global solar installations. E-commerce giants JD.com and Alibaba Group Holding Ltd. benefited from improved sentiment towards discretionary spending, while China Resources Land Ltd. rose on the back of improving industrywide sales data.

Market Outlook

Russia’s invasion of Ukraine, and the subsequent supply shock in markets, dominated sentiment for most of the six-month period ended June 30, 2022 as EM equities had a rough start to the year. The Federal Reserve (the “Fed”) has been unwinding years of loose monetary policies to tackle the commodity-led inflation that has dented consumer demand and sparked worries of a global recession. As the U.S. Central Bank is speeding up its policy normalization process with multiple rate hikes in the first half of 2022, EM central banks have mostly kept pace by aggressively tightening either in line with or ahead of the Fed. However, emerging economies’ currency reserves and current account positions are also in much better shape than before, and their central banks are closer to ending their tightening cycle.

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Portfolio Commentary (Continued)

First Trust/abrdn Emerging Opportunity Fund (FEO)

Semi-Annual Report

June 30, 2022 (Unaudited)

Meanwhile, the potential for a counter-cyclical recovery in China remains, in light of recent measures by Beijing to ease some COVID-19 restrictions and bring major cities like Shanghai out of lockdown. The Chinese government is under pressure to further boost the economy, particularly given its 5.5% gross domestic product growth target for 2022.

Heightened geopolitical risks have also brought the security of energy supply to the forefront, increasing investments into renewables. We believe EM companies are currently dominant in many renewable energy sources.

The portfolio remains focused on businesses that have discernible quality characteristics, including sustainable free cash flow generation and earnings growth, pricing power and low levels of debt. We believe such characteristics should help businesses manage this period of supply disruption and cost pressure. In our opinion, we expect markets to begin focusing on these fundamentals as we move through the rest of the year.

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Table of Contents

First Trust/abrdn Emerging Opportunity Fund (FEO)

Portfolio of Investments

June 30, 2022 (Unaudited)

Principal Value (Local Currency)	Description	Stated Coupon	Stated Maturity	Value (US Dollars)
FOREIGN SOVEREIGN BONDS AND NOTES (a) – 39.0%
	Angola – 0.6%
386,000	Angolan Government International Bond (USD) (b)	9.13%	11/26/49	$274,620
	Argentina – 1.6%
136,989	Argentine Republic Government International Bond (USD)	1.00%	07/09/29	31,492
2,250,239	Argentine Republic Government International Bond (USD) (c)	0.50%	07/09/30	530,653
891,100	Argentine Republic Government International Bond (USD) (c)	2.00%	01/09/38	254,832
				816,977
	Bahrain – 1.2%
450,000	Bahrain Government International Bond (USD) (d)	4.25%	01/25/28	404,996
250,000	Bahrain Government International Bond (USD) (b)	6.25%	01/25/51	186,941
				591,937
	Belarus – 0.1%
420,000	Republic of Belarus International Bond (USD) (b) (e)	5.88%	02/24/26	69,300
	Brazil – 6.3%
15,550,000	Brazil Notas do Tesouro Nacional, Series F (BRL)	10.00%	01/01/27	2,562,033
3,748,000	Brazil Notas do Tesouro Nacional, Series F (BRL)	10.00%	01/01/29	595,202
				3,157,235
	Colombia – 1.3%
2,839,000,000	Colombia Government International Bond (COP)	9.85%	06/28/27	673,996
	Dominican Republic – 0.7%
200,000	Dominican Republic International Bond (USD) (d)	5.50%	02/22/29	174,583
270,000	Dominican Republic International Bond (USD) (b)	5.88%	01/30/60	185,305
				359,888
	Ecuador – 0.7%
78,781	Ecuador Government International Bond (USD) (d)	(f)	07/31/30	32,924
344,360	Ecuador Government International Bond (USD) (c) (d)	5.00%	07/31/30	224,272
251,480	Ecuador Government International Bond (USD) (c) (d)	0.50%	07/31/40	103,269
				360,465
	Egypt – 1.5%
418,000	Egypt Government International Bond (USD) (d)	7.60%	03/01/29	306,154
211,000	Egypt Government International Bond (USD) (d)	7.63%	05/29/32	138,778
505,000	Egypt Government International Bond (USD) (b)	7.90%	02/21/48	290,284
				735,216
	Georgia – 0.6%
334,000	Georgia Government International Bond (USD) (d)	2.75%	04/22/26	277,581
	Ghana – 0.4%
432,000	Ghana Government International Bond (USD) (d)	7.63%	05/16/29	213,054
	Indonesia – 2.3%
16,146,000,000	Indonesia Treasury Bond (IDR)	8.38%	03/15/34	1,154,795
	Iraq – 1.6%
650,000	Iraq International Bond (USD) (b)	6.75%	03/09/23	636,187
187,500	Iraq International Bond (USD) (b)	5.80%	01/15/28	168,995
				805,182

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See Notes to Financial Statements

Table of Contents

First Trust/abrdn Emerging Opportunity Fund (FEO)

Portfolio of Investments (Continued)

June 30, 2022 (Unaudited)

Principal Value (Local Currency)	Description	Stated Coupon	Stated Maturity	Value (US Dollars)
FOREIGN SOVEREIGN BONDS AND NOTES (a) (Continued)
	Malaysia – 2.7%
6,010,000	Malaysia Government Bond (MYR)	3.89%	03/15/27	$1,359,145
	Mexico – 3.4%
30,051,800	Mexican Bonos (MXN)	5.75%	03/05/26	1,330,006
8,250,000	Mexican Bonos (MXN)	7.75%	11/13/42	358,935
				1,688,941
	Nigeria – 0.2%
200,000	Nigeria Government International Bond (USD) (d)	7.63%	11/28/47	120,250
	Oman – 1.9%
1,100,000	Oman Government International Bond (USD) (d)	7.00%	01/25/51	972,922
	Peru – 1.2%
3,048,000	Peruvian Government International Bond (PEN) (b)	5.35%	08/12/40	595,768
	Poland – 0.7%
1,909,000	Republic of Poland Government Bond (PLN)	2.50%	07/25/27	341,553
	Qatar – 1.7%
862,000	Qatar Government International Bond (USD) (b)	4.40%	04/16/50	824,882
	Russia – 0.1%
186,844,000	Russian Federal Bond - OFZ (RUB) (e) (g) (h)	7.65%	04/10/30	50,957
33,000,000	Russian Federal Bond - OFZ (RUB) (e) (g) (h)	7.70%	03/23/33	9,000
				59,957
	Rwanda – 0.4%
266,000	Rwanda International Government Bond (USD) (d)	5.50%	08/09/31	208,664
	Saudi Arabia – 1.0%
490,000	Saudi Government International Bond (USD) (d)	4.38%	04/16/29	497,962
	South Africa – 5.7%
57,575,600	Republic of South Africa Government Bond (ZAR)	9.00%	01/31/40	2,855,290
	Uruguay – 0.7%
12,796,610	Uruguay Government International Bond (UYU)	4.38%	12/15/28	351,324
	Uzbekistan – 0.4%
299,000	Republic of Uzbekistan International Bond (USD) (d)	3.70%	11/25/30	217,245
	Total Foreign Sovereign Bonds and Notes			19,584,149
	(Cost $26,533,668)
FOREIGN CORPORATE BONDS AND NOTES (a) (i) – 22.4%
	Barbados – 0.5%
250,000	Sagicor Financial Co., Ltd. (USD) (d)	5.30%	05/13/28	229,351
	Brazil – 1.4%
240,000	Banco do Brasil S.A. (USD) (b) (j)	6.25%	(k)	210,826
200,000	BRF S.A. (USD) (d)	5.75%	09/21/50	133,475
187,230	Guara Norte Sarl (USD) (d)	5.20%	06/15/34	152,210
260,000	Itau Unibanco Holding S.A. (USD) (b) (j)	4.63%	(k)	208,357
350,000	OAS Finance Ltd. (USD) (j) (l) (m) (n)	8.88%	(k)	2,625
200,000	OAS Investments GmbH (USD) (l) (m) (n)	8.25%	10/19/19	1,500
				708,993

See Notes to Financial Statements

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First Trust/abrdn Emerging Opportunity Fund (FEO)

Portfolio of Investments (Continued)

June 30, 2022 (Unaudited)

Principal Value (Local Currency)	Description	Stated Coupon	Stated Maturity	Value (US Dollars)
FOREIGN CORPORATE BONDS AND NOTES (a) (i) (Continued)
	Chile – 0.4%
236,000	Empresa Nacional del Petroleo (USD) (d)	3.45%	09/16/31	$191,609
	China – 1.2%
648,000	Huarong Finance II Co., Ltd. (USD) (b)	5.50%	01/16/25	629,370
	Colombia – 0.8%
411,000	Ecopetrol S.A. (USD)	5.38%	06/26/26	381,663
	Dominican Republic – 0.5%
270,000	AES Andres BV (USD) (d)	5.70%	05/04/28	230,489
	Ecuador – 0.4%
197,647	International Airport Finance S.A. (USD) (d)	12.00%	03/15/33	192,866
	Georgia – 0.4%
200,000	Bank of Georgia JSC (USD) (d)	6.00%	07/26/23	198,000
	Ghana – 0.6%
400,000	Tullow Oil PLC (USD) (b)	7.00%	03/01/25	326,118
	Honduras – 0.4%
240,000	Inversiones Atlantida S.A. (USD) (d)	7.50%	05/19/26	226,440
	India – 2.2%
250,000	Adani Green Energy UP Ltd. / Prayatna Developers Pvt. Ltd. / Parampujya Solar Energy (USD) (d)	6.25%	12/10/24	240,000
70,000,000	HDFC Bank Ltd. (INR) (b)	8.10%	03/22/25	880,638
				1,120,638
	Indonesia – 0.4%
200,000	Medco Platinum Road Pte Ltd. (USD) (d)	6.75%	01/30/25	185,984
	Israel – 0.4%
211,000	Energean Israel Finance Ltd. (USD) (b) (d)	4.88%	03/30/26	187,009
	Mexico – 2.5%
270,000	BBVA Bancomer S.A. (USD) (b) (j)	5.13%	01/18/33	229,087
200,000	Braskem Idesa S.A.P.I. (USD) (d)	6.99%	02/20/32	154,969
9,600,000	Petroleos Mexicanos (MXN) (b)	7.19%	09/12/24	438,436
280,000	Petroleos Mexicanos (USD)	7.69%	01/23/50	190,620
270,000	Sixsigma Networks Mexico SA de CV (USD) (d)	7.50%	05/02/25	239,876
				1,252,988
	Nigeria – 1.8%
264,000	Access Bank PLC (USD) (d)	6.13%	09/21/26	214,183
230,000	BOI Finance BV (EUR) (d)	7.50%	02/16/27	195,245
230,000	IHS Netherlands Holdco BV (USD) (d)	8.00%	09/18/27	202,069
320,000	SEPLAT Energy PLC (USD) (d)	7.75%	04/01/26	287,469
				898,966
	Oman – 1.0%
200,000	Oryx Funding Ltd. (USD) (d)	5.80%	02/03/31	189,163
325,000	Oztel Holdings SPC Ltd. (USD) (d)	6.63%	04/24/28	328,293
				517,456
	Peru – 0.3%
200,000	Petroleos del Peru S.A. (USD) (d)	5.63%	06/19/47	135,633

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See Notes to Financial Statements

Table of Contents

First Trust/abrdn Emerging Opportunity Fund (FEO)

Portfolio of Investments (Continued)

June 30, 2022 (Unaudited)

Principal Value (Local Currency)	Description	Stated Coupon	Stated Maturity	Value (US Dollars)
FOREIGN CORPORATE BONDS AND NOTES (a) (i) (Continued)
	Russia – 0.1%
217,000	Home Credit & Finance Bank OOO Via Eurasia Capital S.A. (USD) (b) (e) (j)	8.80%	(k)	$27,125
250,000	Sovcombank Via SovCom Capital DAC (USD) (j) (l)	7.75%	(k)	25,000
				52,125
	Saudi Arabia – 2.5%
1,096,000	Saudi Arabian Oil Co. (USD) (b)	2.88%	04/16/24	1,076,771
200,000	Saudi Arabian Oil Co. (USD) (d)	4.25%	04/16/39	185,380
				1,262,151
	Singapore – 0.4%
260,000	Puma International Financing S.A. (USD) (b)	5.00%

SEC Form N-CSRS filed by First Trust/abrdn Emerging Opportunity Fund