ASCI aims to provide a high and growing dividend as well as capital growth by investing in UK small and mid-caps. It is managed by Abby Glennie and Amanda Yeaman, who draw on the resources of the wider Aberdeen Standard Investments’ (ASI) UK equity team. As discussed under Dividend, ASCI currently yields c. 2.8% and the board has substantial revenue reserves to draw on. The management team seek to grow the yield sustainably, yet ASCI also boasts a high historic yield relative to the AIC UK smaller companies peer group.
Following the merger of Aberdeen Asset Management and Standard Life Investments, management of ASCI was taken over by the current team in September 2018. As discussed under Portfolio, the team has realigned the portfolio in keeping with their own investment style and process. The strategy, which the team has operated for over 20 years in other vehicles, has led to strong performance as discussed under Performance.
The management team seek to understand a range of factors surrounding the underlying holdings, focussing in particular on various growth, quality, and momentum factors. With the team keen to ‘run their winners’, the portfolio contains a range of companies, many long-term winners.
ESG is integrated into the investment analytical process at each stage, and the team have access to ESG specialist analysts within the ASI framework and UK equity team, and a further ESG analyst on the team.
Despite the strong performance, the Discount has widened out to c. 12.4% (as at 07/12/2020) compared to the sector average of 4.5%. This mirrors moves seen in the broader sector and is seemingly reflective of wider sentiment towards the UK market.
We think the approach adopted within ASCI can prove supportive to relative returns, with a demonstrated long-term track record of adding value in other strategies operating this investment approach (including the Standard Life UK Smaller Companies Trust (SLS). ASCI has demonstrated a 12-month R2 to SLS of 0.95, demonstrating close alignment. However, ASCI offers a significant yield premium to SLS (currently 2.8% vs. 1.6%) from an area not typically represented in income portfolios, and trades on a significantly wider discount (12.4% vs. 2.6%). For this reason, we include ASCI in our Discounted Opportunities Portfolio. However, discount narrowing may not be an immediate consequence to a broader recovery in UK small-caps, with the most reactive buying activity likely instead to focus on larger, more liquid investment trust alternatives.
ASCI’s historic yield is high relative to the broader small cap investment trust universe, with only five trusts in the sector offering a higher level of historic yield at the time of writing. The majority of those with greater yields have specific policies to pay dividends out of capital, or else utilise highly geared capital structures to boost their yield. ASCI, however, typically seeks to pay dividends based on underlying income generation, looking for sustainable dividends they can grow. Whilst the dividend will almost certainly require support from revenue reserves in the current financial year, over the longer-term this focus on sustainable dividend growth should prove attractive in our view.
|Approach has long-term proven track record
||Small size of trust means it is likely too small for many institutions
|Dividend appears well supported for the near term by ample revenue reserves
||Charges are relatively high, a consequence of the relatively small size of assets under management
|Discount is wide on an absolute basis and relative to peers
||Gearing can exacerbate downside, as well as amplify upside