Fund Profile

Disclaimer

This is a non-independent marketing communication commissioned by Aberforth Partners LLP. 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
ASL has had an excellent period of performance in the reflationary rally of the past year…
Overview

The reflationary rally since the announcement of successful vaccine trial results has been fantastic for value managers, and Aberforth Smaller Companies (ASL) has taken full advantage. As we discuss under Performance, the trust has generated strong returns over the past year, versus both the Numis Smaller Companies ex IT benchmark and against the UK small-cap sector.

Consequently, the discount narrowed significantly in Q4 2020, the trust trading close to par in December and again in April 2021. However, as growth has outperformed value slightly since the summer, ASL’s Discount has widened out to the low double digits.

ASL is run to a disciplined value strategy, increasingly hard to find after a long period of growth outperformance. The seven-member management team look to identify strong companies that have fallen out of favour and invest until their valuations revert. As we discuss in Portfolio, this leads to a contrarian element to the style which can lead to periods of underperformance before sentiment changes.

Thanks to the strong performance of many companies in the portfolio, turnover has been high by recent standards as the managers sell companies into strength and recycle into new opportunities. They are still seeing opportunities in companies geared to the reopening of the economy as well as more stock-specific stories. Gearing remains in place, reflecting the managers’ belief in the value in their portfolio.

The trust’s objective is to maximise total return, but a consequence of investing for value is the managers are led to companies with a higher yield than average. The board has a progressive dividend policy with extensive reserves and has managed to maintain the payout even through the pandemic. The historic yield is 2.0%.

Kepler View

ASL’s strong recent results show how powerful a value strategy can be when sentiment shifts in its favour. It is true that the extreme outperformance of the past year is unlikely to be repeatable, starting at a point with an extreme divergence between the valuations of and sentiments towards growth and value stocks. However, with central banks widely expected to raise rates steadily in the coming years, the environment looks to be significantly better for value as a style than it was prior to the pandemic. In the short term, the widening discount seems to be profit-taking from extreme levels, and in our view, could provide a good entry point.

Notably, the UK remains cheap compared to its peers, and the high levels of M&A indicate institutional investors see the value. From such low valuations, the market looks like a good place to have exposure in the medium to long-term, although we acknowledge short-term risks from the re-emergence of Brexit-related disputes.

bull bear
Disciplined value strategy that has outperformed over long run
Strong style bias can lead to periods of underperformance
Wide discount could prove good entry point
Cyclicality of portfolio would increase sensitivity if market falters
Consistent approach should lead to more stable diversification benefits in a portfolio
Gearing increases sensitivity to falling markets as well as rising markets
Continue to Portfolio

Fund History

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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