Fund Profile

Aberforth Smaller Companies 30 April 2019

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Aberforth Smaller Companies. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
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Overview

Aberforth Smaller Companies (ASL) is the only UK smaller companies trust with an unambiguous value approach, barring its income-focused sister Aberforth Split Level Income.

The long-term track record has been extremely strong, although returns in recent years have been below those of the peer group thanks to the managers’ diligent adherence to a value approach - a style that has been very much out of favour in what has been a growth or momentum driven market. The value approach and the concentration on the smaller end of the market (due to its lower valuations) differentiate the trust from its peers.

The value approach leads to a contrarian tilt to the portfolio, which has in recent years become overweight domestic earners and picked up exposure to resilient retailers that have been sold off on sentiment rather than fundamentals. These exposures have helped the trust in recent months.

The team of managers has extensive experience, with the two remaining founding partners having been involved in running the portfolio since 1990. One of them, Richard Newbery retires at the end of this month (April 2019), leaving a committed team of six experienced investors who follow the same philosophy and approach the company has had since the beginning. The team has significant shareholdings in the trust, and so their interests are well-aligned with the long-term interests of shareholders.

Although the trust aims for total returns, the value approach often leads the company into higher dividend-payers. The historic yield is 2.4% excluding non-recurring special dividends, which compares favourably to a sector average that does include specials of 2.5%. The board is committed to a progressive dividend policy, which has been supplemented by special dividends over recent years. With significant revenue reserves and high average cover for dividends paid by the portfolio holdings, the managers hope that the dividend can grow even through the next cyclical downturn.

The trust is trading on an 8.7% discount compared to a sector average of 7.2%. The trust did trade on a tighter discount than the sector briefly in Q1. In this period many investors bought back into the UK on value grounds, although after the date for “Brexit” was pushed back into the autumn the discount widened again.

Kepler View

The strict valuation discipline makes this trust unique in the smaller companies space. We believe it could be held on its own by investors who wish to harvest the value premium in small caps, or used to diversify the heavy growth biases in most small- and mid-cap focussed funds, open- or closed-ended.

Value has been out of favour for a while in small caps and in the wider market thanks to the low growth, low inflation environment, which has seen investors chase secular growth in the few areas they can find it. A period of rising rates and inflation could create a much more fertile ground for Aberforth’s approach, although we note that calling turns in the market is extremely difficult, so waiting for a regime change could be a risky approach to take. Thanks to the aversion to the value style, the trailing PE on the Aberforth Smaller Companies portfolio is towards its lowest at any time since launch, except during the early 1990s recession and immediately following the 2008 crisis.

Moreover, the 9% discount perhaps offers some comfort on the downside. A rebound in the performance of value versus growth could well see the trust trade on a premium versus peers as has happened in the past.

BULL
BEAR
A highly experienced management team, which has followed a consistent approach through multiple market cycles and takes a long-term view.
It may be some time before we see a sustained period of value outperforming growth in small caps.
A unique approach in the small-cap sector, which offers diversification benefits as well as the chance of outperformance when the economic regime changes.
The risk to a value approach in small caps is that cheap stocks can go bust, although this is mitigated by the trust’s diversified portfolio.
An active share buyback policy and a trust trading on a discount to peers thanks to its style being out of favour.

Continue to Portfolio

Fund History

10 Apr 2024 Micro-managing
What opportunities exist in the smallest part of the UK market?
11 Mar 2024 A sentiment shifting statement?
Whilst light on detail, the announcement of a UK ISA is a step in the right direction…
10 Jan 2024 Definitely maybe
Fund flows and discounts may shed some light on a once-in-a-generation opportunity…
13 Dec 2023 In-come all ye faithful
Equity income could be a beneficiary of the higher interest environment, with trusts a good way to capture it…
12 Dec 2023 In it, to win it
ASL shows us how mistiming the market can decimate return potential…
01 Dec 2023 Fund Analysis
ASL’s value approach is well placed to capture the potential of a new market era…
13 Nov 2023 Is a stealth value market underway?
Higher for longer could be good news for value investors…
16 Aug 2023 Time to take the plunge
UK smaller companies have historically outperformed after every fall. Is this the moment to brave the uncertainty..?
09 Jun 2023 Fund Analysis
ASL’s value style has boosted performance, but valuations remain very low, and M&A could spark a further lift…
06 Apr 2023 Fallen Kingdom?
Since the UK was described as a ‘Jurassic Park’ stock market, it has outperformed. Is this a new age for the stock market..?
18 Jan 2023 Fortune favours the brave
Our research suggests a recession has already been priced into small cap trusts, but risks abound...
30 Nov 2022 Fund Analysis
ASL has outperformed since the vaccine rally, and its cheap portfolio valuations have historically led to strong returns…
10 Aug 2022 Get ‘em while they’re hot
Wide discounts in the UK Smaller Companies sector may present long term investors with good entry opportunities…
25 May 2022 Fund Analysis
ASL is benefitting from a market environment which favours value over growth…
11 May 2022 Catch a tiger by the tail
As inflation bites harder than it has for decades, we consider the best ways for investors to hang on to their capital...
27 Apr 2022 Finding value in a haystack
Non-income value strategies are becoming increasingly scarce, but the holdouts represent attractive near-term opportunities…
17 Nov 2021 Fund Analysis
ASL has had an excellent period of performance in the reflationary rally of the past year…
30 Jun 2021 Inflation – a real threat or hot air?
Two of our analysts ask whether recent high inflation numbers indicate something long-lasting and troubling is happening…
26 May 2021 Fund Analysis
Despite a strong rally, ASL’s portfolio retains significant upside to fair value...
24 Mar 2021 Shoot to Thrill: ISA targets for long term growth
We all intend to invest for the long-term but can often be distracted by the news...
10 Feb 2021 Eye of the Pfizer
Mining shares have rallied in recent months. With further potential, what impact could this have on the relative returns of active UK Small cap strategies...
26 Nov 2020 Fund Analysis
ASL offers exposure to a cyclical rebound post-vaccine from a deeply discounted portfolio…
25 Nov 2020 Britannia Redux
UK equities have been despised for almost five years and could offer extreme rebound potential…
17 Sep 2020 Blood in the streets
The UK Smaller Companies Sector faces plenty of challenges, but bombed out valuations among trusts in the sector look interesting...
16 Jun 2020 Factor performance and the COVID-19 effect
Will value continue to move into the black, or fade to red?
28 May 2020 Fund Analysis
ASL offers exciting return potential from its current extreme levels of valuation…
06 May 2020 The fight in the dog
We look at the characteristics which have separated the winners from the losers among small-cap trusts in the current crisis, with some surprising results...
15 Apr 2020 Hold fast
Investment trusts' revenue reserves could make them a vital stronghold for investors facing UK dividend cuts of as much as 47%....
03 Dec 2019 Fund Analysis
ASL’s portfolio is on a deep discount to the market, with signs of a turnaround in performance…
06 Nov 2019 Times are a changin'? The case for a value resurgence
We are in the midst of the longest period of value underperformance since the 1920s. Could we be approaching a change in environment?
01 Aug 2019 Rethinking UK equity income
Despite being a popular allocation for investors, the UK Equity Income sector is currently plagued by the problem of concentration. Our analysis suggests smaller companies could be a strong alternative source of diversified income…
30 Apr 2019 Fund Analysis
Aberforth Smaller Companies (ASL) is the only UK smaller companies trust with an unambiguous value approach, barring its income-focused sister Aberforth Split Level Income...
27 Mar 2019 NEVeR MiND tHE B*LL*CKS
We cut through the histrionics and discover, with surprising results, what life has really been like for British investors since David Cameron put it to 'the people'....
19 Sep 2018 Artificial Alpha
While there are some signs that we may be finally seeing the froth come off the growth-led market, we think investors need to be highly selective in choosing value strategies...
12 Sep 2018 High flyers
Our research shows small-cap managers adding consistently more alpha, and regulatory change means this could be an attractive time to invest in the sector...
27 Jun 2018 A winning combination
New research from Cass Business school helps explain why closed-ended funds have outperformed their open-ended peers in the major equity sectors since 2000...
19 Jun 2018 Fund Analysis
Aberforth Smaller Companies is the only UK smaller companies trust with an unambiguous value approach...
19 Jun 2018 Pretty little things
Many smaller companies managers have been shifting into micro caps in 2018, should investors be following suit?
29 Jan 2018 Fund Analysis
A value-focused UK small-cap portfolio run by one of the most experienced small-caps teams in the business...
23 Jan 2018 What lies beneath
Our analysis shows the majority of investors, besotted with the growth rally, are wholly unprepared for rising bond yields...
26 Apr 2017 Size matters
Our analysis proves that investment trusts really are the best way to access smaller companies, and exposes liquidity concerns for their open ended counterparts...
20 Apr 2017 Fund Analysis
25 Jan 2017 A new dawn for value investing
After years in the wilderness, value investing is a making a comeback and our research suggests its outperformance will continue if bond yields keep rising...
19 Apr 2016 The ultimate arena for stockpicking
Our analysis of 285 open and closed end smaller companies funds highlights the best active managers in the field...
19 Apr 2016 Value investing makes a comeback
Equity strategists at JPMorgan Cazenove think value stocks could be back on top for the first time since the credit crunch.
View all

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Current Site Kepler Trust Intelligence is produced by the investment companies team at Kepler Partners and is the UK’s premier source of detailed qualitative research on investment trusts. Absolute Hedge is a market leading UCITS research database providing proprietary research on funds, themes and strategies in the UCITS space. Kepler Liquid Strategies is a Dublin domiciled UCITS fund platform featuring a number of best-of-breed fund managers. Kepler Partners is a corporate advisory and asset raising boutique specialising in the regulated funds market in Europe and investment trusts in the UK.