Fund Profile

Aberforth Split Level Income 26 November 2018


Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Aberforth Split Level Income. 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.

A new version of this profile is available. View Latest

Aberforth Split Level Income Trust (ASLIT) is now in its second year having launched on 3 July 2017. In contrast to the first twelve months, in which the trust outperformed the Numis Smaller Companies index (excl. Investment Companies), the period since the summer has been challenging for the trust. Distinct to big-sister Aberforth Smaller Companies Trust (ASCOT), the trust has an inherent income bias.

Being contrarian and value investors, the portfolio is unsurprisingly heavily exposed to UK domestic stocks. However, the managers highlight that their portfolio currently represents many layers of opportunity, with UK stocks being out of favour (from the perspective of international investors), small caps having underperformed large caps, value having underperformed growth over a number of years, and lastly, the domestic focus of many of the underlying companies.

The Aberforth approach, the income mandate and the company’s structure means that ASLIT is highly differentiated to its peers in both the closed- and open-ended sectors. ASLIT has the most extreme positioning towards value (according to Morningstar). Relative to peers, the ordinary shares of ASLIT have the highest gearing to equities of peers.

The dividend of 4p (ex last year’s special) currently yields 4.9% on a historic basis, is one of the key draws for ASLIT. ASLIT is currently delivering ahead of target on the income front having generated earnings per share of 5.43p for the first full year to 30th June 2018. The board have banked revenue reserves of 0.8p per share. Taking the difference between the company’s cum- and ex-income NAV’s and the dividend so far paid (the company pays two dividends per year) reveals that earnings this year (for the five months to mid-November) have so far been in the order of 2.1p per share. The managers currently expect mid single digit dividend growth from small caps in the current year, which would be a deceleration compared with recent years but which would still represent progress in real terms.

The managers aim to have ASLIT near fully invested at a portfolio level at all times. The company has structural gearing in the form of zero dividend preference shares, which means that the ordinary shares are 28% geared, considerably higher than most smaller company trust peers, most of which do not have any gearing at all.

The Aberforth team has decades of experience between its members, but the original partners have gradually been retiring, being replaced by a committed team of experienced investors. Alistair Whyte and Richard Newbery are the last of the original partners, having been on the team since launch in 1990. Richard has recently announced his intention to retire in April 2019. The newest recruit is Jeremy Hall who has recently joined from Cartesian and Nikko.

When we last reviewed ASLIT the shares were trading on a discount of c.7.5%. Since then, that rating has improved to c 4.5% and the shares continue to trade at a premium to the wider smaller companies peer group, but in line with the higher income trusts such as Chelverton UK Dividend Trust and Acorn Income Trust.

Kepler View

ASLIT’s portfolio is highly differentiated to its peers in both the closed- and open-ended sectors, not to mention the income bias, gearing, as well as the length and breadth of experience at the managers. As such, the premium rating to the majority of its peers is very much deserved in our view.

Performance has been challenging of late. There have been certain false dawns for value investors (particularly in 2013 and the end of 2016), but as we highlighted earlier this year, we believe that rising interest rates around the world are likely to be the catalyst for value managers to start performing again.

Another clear catalyst would be a decent resolution to the uncertainty surrounding Brexit. It seems likely that if anything even vaguely positive is salved from the wreckage, then ASLIT’s portfolio would be more positively impacted than most given their geared exposure to domestic small caps.

High dividend yield
Structural gearing will amplify volatility for ordinary shares
Experienced team, who have generated alpha over the long term
A no deal Brexit would significantly dent sentiment
Value stocks, in a deep value area (domestically exposed UK smaller companies)
No discount control mechanism
Continue to Portfolio

Fund History

07 May 2024 Thomas McMahon speaks on the Money Makers podcast
Thomas McMahon, Head of Investment Companies Research, appears on the Money Makers podcast to discuss three current themes in the investment trust sector: BCPT and commercial property, ASIT and split-level trusts, and the UK micro-cap sector...
29 Nov 2023 Fund Analysis
ASIT’s managers: Today’s investment opportunity is amongst the best in Aberforth’s 33 years…
09 Jun 2023 Fund Analysis
ASIT has the potential to deliver strong returns in its short remaining life…
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...
14 Dec 2022 Fund Analysis
ASIT offers potentially exciting returns as its planned 1 July 2024 wind-up date approaches…
16 Jun 2022 Fund Analysis
ASIT offers potentially exciting returns as its July 2024 wind-up approaches…
17 Nov 2021 Fund Analysis
ASIT is well-positioned to perform exceptionally well in an economic recovery…
01 Jun 2021 Fund Analysis
ASIT’s portfolio remains highly geared to an UK economic recovery...
26 Nov 2020 Fund Analysis
ASIT’s high gearing and cyclical portfolio mean it could offer exceptional performance potential as the end of the pandemic becomes clearer…
25 Nov 2020 Britannia Redux
UK equities have been despised for almost five years and could offer extreme rebound potential…
29 Jul 2020 To be, or not to be (geared), that is the question
Gearing is part of the toolkit that trusts use to outperform OEICs. But how is it best implemented?...
27 May 2020 Fund Analysis
ASIT’s gearing allows it to offer a very high yield and strong rebound potential…
10 Dec 2019 Fund Analysis
ASIT is a small-cap value trust, with a yield of 5%...
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
ASLIT is a high yielding smaller companies fund with a disciplined value approach, offering a historic yield of 4.9%...
26 Nov 2018 Fund Analysis
A UK focused portfolio with a highly differentiated small cap value bias and a disciplined and experienced management team…
19 Jun 2018 Pretty little things
Many smaller companies managers have been shifting into micro caps in 2018, should investors be following suit?
23 May 2018 Fund Analysis
A differentiated UK small cap income trust, heavily exposed to the domestic UK economy...
23 May 2018 Backing Blighty
We highlight trusts with a heavy focus on domestically focused UK equities...
View all

Welcome to Kepler Trust Intelligence

Please enter a valid email address
Please enter a valid password
Please enter a valid email address
Please check your email. If an account exists you'll be sent instructions on how to reset your password.
To ensure that we are able to provide content which is appropriate for you, please tell us a little about yourself.
Please choose an option
Please enter a company name
Please enter a location name
Please choose an option
Please enter a platform
Please choose an option
Please enter a trust
The information contained herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in the United States to or for the benefit of any United States person (being residents of the United States or partnerships or corporations organised under the laws thereof). The investment funds referred to herein have not been registered in the United States under the Investment Company Act of 1940 and units or shares of such funds are not registered in the United States under the Securities Act of 1933.
Please confirm
Please select an option
See benefits
A free Kepler Trust Intelligence account allows you to access premium content including the ‘Kepler View’ – our verdict on the trusts we cover – and historical research so you can see how our view has changed over time. An account also unlocks useful facilities like the ‘follow’ button which lets you keep track of the trusts you’re interested in and as a logged in user you can also download PDFs of our research, and choose the layout of the page you’re reading to suit your preference. We will not share your details unless you give us permission to do so, and we won’t bombard you with emails – we only send one a week.
Please select an option
Please enter your first name
Please enter your last name
Please enter a valid email address
An account already exists with this email - have you forgotten your password?
Please enter a valid password
Please enter a valid password
How will this information be used? Your answers help us to tailor our content to relevant investment trusts, and to ensure that the asset allocation and portfolio strategy research we produce is appropriate to our userbase.
Our Website uses Cookies Cookies are small text files held on your computer. They allow us to give you the best browsing experience possible and mean we can understand how you use our site. Some cookies have already been set. You can delete and block cookies, but parts of our site won’t work without them. By using our website you accept our use of cookies. For further information please refer to the Kepler Privacy Notice.
Need help?

One more thing...

Did you know, you can 'follow' individual trusts on Kepler Trust Intelligence? Use the functions below to set up alerts and we'll send you research and updates on your chosen trusts.

Suggested trusts to follow

Browse all funds
Need help?
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.