Aberforth Split Level Income

ASIT’s portfolio remains highly geared to an UK economic recovery...

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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.

Aberforth Split Level Income

Summary

Aberforth Split Level Income (ASIT) invests in UK small-caps. Managed on a collegiate basis by the investment team at UK Small cap specialists Aberforth Partners, ASIT comprises a portfolio of UK smaller companies which the managers believe to be trading at substantial discounts to their fair-value.

A fixed-life trust due to be wound-up in July 2024, ASIT employs structural gearing through zero-dividend preference shares (ZDPs), as discussed under gearing. These afford the managers flexibility to continue to generate a high level of yield without having to compromise their investment process to exclude outstanding opportunities for capital growth.

Nonetheless, as we discuss under dividend, the current historic yield of c. 4.7% is likely to prove illusory given the sharp reduction in dividends from within the investable universe. ASIT’s board has guided dividends lower for the current financial year, and the first interim dividend was markedly lower than from the previous financial year. We would still, however, anticipate a greater level of yield from ASIT than from most UK small cap peers.

Recent returns in the post-vaccine rally have been strong, but since listing performance has been more challenging as value style indices have generally lagged. However, the fixed-life nature of the trust allows us to project what the returns to wind-up will be under a variety of assumptions, as we do in the performance section.

Despite the very significant rally in ASIT’s NAV in recent months, the managers note that they still observe significant value opportunities within their market and portfolio, as discussed under portfolio. They have continued to operate a ‘value roll’, selling down positions which have rerated higher and moving into more lowly valued opportunities.

Kepler View

Looking out to the wind-up date, the assumptions required to generate attractive annualised total returns over this period do not look overly challenging to us, though given the fixed wind-up date the potential impact of intra-market style cycles on NAV growth will remain of concern.

However, we note that ‘high yield’ factors as a strategy within the UK market has only in recent weeks begun to outperform, despite a broader ‘value’ rally. We think this may suggest that much of the initial value/cyclical rally from November was merely a readjustment of insolvency expectations from a market paranoid about indefinite lockdowns. The extremity of the valuation discount in ASIT’s portfolio in November suggests as much to us. If this is the case, we think the value rally may well have further to run as economies continue to reopen, spare capacity disappears, and inflationary pressure (led by policymakers determined to run the economy ‘hot’) emerge.

Income investors will likely be disappointed to see dividends guided lower for the current financial year, but the backdrop of mass dividend cuts does offer explanation for such a course. Similarly, the mass de-ratings in many companies’ valuations over 2020 should have given rise to a raft of opportunities for cycle-conscious value investors such as Aberforth, and we think that from a total-return perspective this should offer an attractive hunting ground for the managers. Even with the guidance lower, we would anticipate a premium level of yield from this point compared to the peer group average.

bull bear
Disciplined investment process with significant management experience behind it
Ultimate magnitude of dividend cut remains to be seen
Portfolio retains substantial upside to managers’ estimation of fair-value
Gearing can exacerbate downside (as well as amplify upside)
Fixed life limits discount risk
Fixed wind-up date offers NAV cyclicality risks

Portfolio

Aberforth Split Level Income trust (ASIT) seeks to generate an attractive yield from UK small cap equities. Managed by Aberforth Partners, the trust consists of a portfolio of UK smaller companies considered to have attractive bottom-up value characteristics by the seven-person management team. ASIT incorporates structural gearing through zero dividend preference shares (ZDPs). These ZDPs do not receive a dividend, but allow higher dividends to be paid to ordinary shareholders through expansion of the capital base, as discussed under gearing. Having first listed in 2017, ASIT is a fixed-life trust, and replicates the structure of a predecessor trust which was successfully managed to the end of its fixed life.

For its sister product, Aberforth Smaller Companies (ASL), Aberforth has deployed the same process since 1990, though with ASIT there is a greater emphasis placed upon identifying resilient and attractive yields. However, the high degree of structural gearing within ASIT means that the managers are not constrained to buying only high yielding stocks. The management team have been subject to change since 1990, with the departure of the final remaining founding partner earlier in 2021. However, the team-based investment process has remained consistent even as the personnel has changed.

This investment process aims, through bottom-up stock analysis, to find companies which are trading below their intrinsic value and stand to benefit as their earnings and valuations normalise. With an avowedly ‘value’ based approach to stock analysis employed by the managers, ASIT tends to look quite different to the majority of its peers. The team operate a collegiate approach to stock selection and analysis, with individual managers/analysts conducting research and sharing their findings amongst the team. Weekly meetings are held to review any updates to research or operational conditions for the underlying companies, with all holdings also subject to a formal review on publication of their annual and interim results.

Aberforth as a firm is a UK small cap specialist, and the value focus is embedded across all strategies the team manage. Seeking to ensure the strategies retain sufficient flexibility to best execute the team’s stock ideas, the firm’s AUM is limited to c. 1.5% of market capitalisation of the ‘investment universe’ Numis Smaller Companies ex IT Index. Aberforth is a partnership owned by seven partners, six of which are investment managers. All are substantial co-investors in the underlying trusts.

As a firm, Aberforth’s investing philosophy emphasises that there is an appropriate price for everything. The managers note that sentiment to various sectors is often cyclical, and seek to buy into companies when market sentiment is depressed. They note that, often, these companies are fundamentally financially sound, but may be facing short-term issues or simply suffering from associated newsflow. As managers, they seek to understand whether a company’s shares appear cheap because the market has grown unduly pessimistic on the challenges it faces, or whether the market is correctly identifying a business which faces fundamental challenges likely to result in its failure.

ASIT’s managers primarily focus, in their evaluation of a company’s valuation, on the EV/EBITA ratio (although other valuation metrics are also used). The managers seek to identify and buy cash-generative companies which they believe remain financially robust at times when they are out of favour with the wider market. Often, earnings will be cyclically depressed or impaired, but the managers will look to identify where this will be rectified in a reasonable timeframe. As this improvement in cash flow and earnings becomes more apparent, and market sentiment improves and the valuation rerates, they then look to rotate out of these positions into more lowly-rated opportunities. They will, however, retain positions when a rising share price is reflective of improving operational outlook which has not yet led to a valuation rerating.

This process of turnover, from companies trading on more ‘normalised’ valuations to those which are lowly rated, is known as the ‘value roll’, and frequently sees the team buy positions they have previously exited following a subsequent cyclical fall in sentiment. Over the four months to 30/04/2021, we understand this saw them exit positions with a weighted average 2023 EV/EBITA ratio of 11.5x and purchase positions with a weighted average 7.4x 2023 EV/EBITA (based on their forward-looking estimates).

We can somewhat see the impact of this on the portfolio when we compare the current top-ten holdings with those from when we last updated our research on ASIT. When compared to ASL, however, we would anticipate there to be slightly lower turnover overall, to facilitate income collection and meet the greater focus on income within ASIT. The managers, however, do not feel the need to crowd into high yield positions to generate income (facilitated in part by the structural gearing in place), and continue to manage portfolio risk from the perspective of limiting stock-specific risk. There is significant commonality of holdings between the two portfolios (as we can see below), but ASIT positions which have been strong winners in recent months, such as Reach and Wincanton, have been allowed to run to slightly greater weightings in recognition of their dividend potential.

Top-10 holdings compared to ASL

Aberforth Split Level Income

Aberforth Smaller Companies

Holding

%

Holding

%

Reach

4.3

Reach

3.9

Wincanton

3.9

Wincanton

2.8

Brewin Dolphin

3.2

Vitec Group

2.6

Redde Northgate

3.0

Redde Northgate

2.5

TI Fluid Systems

3.0

Just Group

2.4

Rathbone Brothers

2.8

TI Fluid Systems

2.4

Vesuvius

2.8

Robert Walters

2.3

Vistry

2.5

Brewin Dolphin

2.3

Morgan Advanced Materials

2.4

SIG

2.2

Bakkavor Group

2.4

Morgan Advanced Materials

2.2

Total:

30.3

Total:

25.6

Source: Aberforth Partners, as at 30/04/2021

Illustrative of both the ‘value roll’ process in action, and of the flexibility to look at a wider universe of stocks and not simply at the highest yielding opportunities, was the purchase in 2020 by the team of a position in PageGroup, a leading recruitment firm. With the challenging backdrop for recruitment over 2020, PageGroup stock saw a significant sell-off in recognition of the headwinds the company’s operations faced. Yet, the team note, PageGroup is financially robust (with a net cash balance sheet) and has faced similar downturns beforehand. Understanding this, and the likely cyclical nature of the challenges to PageGroup, helped them look through an optically expensive valuation on the stock; this valuation was a reflection of the (at the time) presently depressed nature of the company’s cash flow, not of their normalised cash flow. When the team constructed projections going out several years which accounted for a normalisation in operational conditions, they could see the stock trading at a significant discount to the market and to its own history. Accordingly, they introduced a position, despite the fact that the stock did not pay a dividend in 2020 (however, if total dividends were to revert to 2018 levels this would represent a c. 4.3% yield on the current share price).

When we last updated on ASIT, we noted the managers estimated that the portfolio’s weighted average upside was 79% on a total return basis, prior to the impact of gearing. At the time, valuation dispersions within the UK market had reached extreme levels, and the relative P/E of a representative Aberforth portfolio was three standard deviations below its historic mean (going back to the 1990 launch of ASL). As we discuss in performance, there has subsequently been a recovery in value stocks and cyclical sectors, with ASIT strongly outperforming both the peer group average and Numis Small Companies ex IT Index (generating NAV total returns of 66.9% from 09/11/2020-18/05/2021). The managers note that there has been reversion in the relative multiples within their typical portfolios to around historic averages; however, they note that there remains multiple opportunities and that smaller companies remain unusually cheap relative to their larger cap peers.

ASIT’s portfolio, they furthermore note, continues to trade on notably lower valuation multiples than the broader investment universe. Whilst the earnings on a look-through basis within ASIT have fallen further than the wider market, they also forecast greater earnings recovery. Accordingly, the further they look forward, the greater ASIT’s current valuation discount to the wider market.

EV/EBITA of portfolio versus Aberforth universe

EV/EBITA

2020

2021

2022

2023

NSCI weight

Weighted average market cap

Tracked Universe

15.3x

13.7x

11.1x

9.5x

97%

£1,012m

ASIT

13.0x

10.5x

8.8x

7.5x

N/A

£751

Source: Aberforth Partners, as at 30/04/2021

Despite the recent rally in much of their portfolio, ASIT’s managers note that 53% of portfolio companies remain below their end-2019 share prices. When grouped against the 47% which are above their end-2019 prices, they note that they observe greater weighted upside to this group (43% against 34%), and have been rotating into many of these as part of the ‘value roll’. Across the portfolio as a whole, they estimate there to be weighted upside of 38% based on earnings normalisation out two to three years, anticipated dividends, and a re-rating of the portfolio to a level in line with market-level valuations. This does not, however, include the impact of gearing (likely to be sizeable), any re-rating in ASIT’s discount, any broader market re-rating (despite the UK small cap market trading at a discounted valuation relative to peers), and with no impact from the ‘value-roll’.

The team note that the small cap market remains discounted relative to the all-cap market within the UK, but also that within the small cap market there tends to be greater value opportunities in ‘smaller smalls’. They attribute this in part to the withdrawal of a significant number of investors from this area on perceived liquidity concerns subsequent to the 2008-09 financial crisis. Although the managers remain alert to the potential that this may prove relatively structural across the market as a whole, they believe this often gives rise to value opportunities with even greater upside within ‘smaller smalls’, and seek to identify companies that can benefit disproportionately from even marginally increased flows. We have seen in recent months sharp outperformance of ASIT as small caps outperformed mid-caps (as discussed in performance), which suggests to us that the lesser liquidity profile can offer the potential for asymmetric upside gains when sentiment improves to this area.

Although 2020 proved highly challenging for the UK economy and, accordingly, many domestically focussed UK companies and UK small-caps, the managers note that their holdings proved more financially resilient than they had expected over much of 2020 and accordingly saw fewer equity raises. Market panic over an assumption of operational distress gave them the opportunity to invest in a number of companies which they believe remain attractive for the longer-term, and where they ultimately expect dividends to be reinstated or to continue to grow as the earnings forecast becomes clearer.

Gearing

Following recent portfolio gains, ASIT is currently c. 30% geared (as at 18/05/2021). ASIT’s ordinary shares are structurally geared through zero dividend preference shares (ZDPs). These ZDPs were issued at 100p per share and receive a fixed repayment of 127.25p per share on 01/07/2024 (when the trust will be wound up), but otherwise receive no dividends and have no voting rights.

Based on the current ZDP share price of 111.5p per share (as at 30/04/2021), the repayment at 127.5p per share equates to a c. 4.3% annualised return. Ordinary shareholders can essentially regard this as the cost of fixed debt in practice. At the point of wind-up, ordinary shareholders will receive the capital value of assets after repayment of the ZDP shareholders (in addition to dividends received throughout the trust’s life).

The managers aim to have ASIT close to fully invested at a portfolio level at all times, using bank borrowings for short-term working capital purposes only (which borrowings are not expected to exceed 2.5% of total assets, and at no point more than 5%). ASIT has a bank overdraft facility of £2m available to it for such purposes (equivalent to c. 1.1% of current total assets, as at 18/05/2021).

Returns

Although recent years have generally proven challenging for value strategies, recent months have seen a recovery and strong outperformance by value (and by more cyclical sectors and companies). This has come from a place of extreme value dispersions within the market, having previously displayed relatively binary divergences between perceived ‘COVID-winners’ and ‘COVID-losers’ over much of 2020, exacerbating previous trends.

Subsequent to the initial market sell-off in Q1 2020, there was a tendency within the market in the initial recovery to prioritise secular growth stories deemed to be accelerated by COVID-19 and associated lockdown policies. Internet commerce, remote working solutions, and other software companies, for example, all attracted significant buying interest. Most cyclicals had already underperformed in the market drawdown on their greater implied sensitivity to the macroeconomic slowdown, but aside from select areas (such as mining) tended to lag in the recovery as macroeconomic uncertainty remained elevated.

Following the announcements in November around the successful developments of COVID-19 vaccines, markets saw a rotation in style to the benefit of value strategies. We note, however, that ASIT’s NAV relative return profile to both the peer group and Numis Small Companies ex IT Index average actually troughed approximately six weeks prior to the first vaccine announcement, on 25/09/2020. This suggests to us that the market was already, by late September, starting to re-evaluate the fundamental solvency of many constituent companies within ASL and of many value and cyclical companies more generally. At this stage, a mere increase in expectations of corporate survival seem to have been sufficient to catalyse share price rallies, and we note with interest the observations of ASIT’s managers that many of their constituent companies proved more financially robust over 2020 than even they anticipated.

When we last updated on ASIT (in November 2020), we highlighted that “The relative historical P/E of ASIT’s portfolio is now (at the time of writing) three standard deviations below its historical mean (going back to launch in 1990)”. From such extreme valuation dispersions, any move towards normalisation or intra-market mean reversion was always likely to see outsized gains from cyclicals and value strategies.

ASIT has benefitted in this bounce, returning 66.9% and 88.2% on a NAV and share price total return basis respectively from 09/11/2020 (when the Pfizer vaccine was announced) to 18/05/2021. By comparison, the Morningstar UK Smaller Companies peer group saw weighted average NAV and share price total returns of c. 30.7% and c. 40% respectively over the same period, whilst the Numis Smaller Companies ex IT Index returned 31.7%. We note that this coincided with 1) small caps outperforming mid-caps, and 2) value outperforming growth and quality, both areas to which ASIT has been tilted consistently in recent years.

However, this has not yet been sufficient to regain the ground lost on a relative basis when we look at the period encompassing the Q1 2020 crash and subsequent recovery. From 01/01/2020 to 18/05/2021, ASIT’s NAV total returns are flat at 0%. This represents underperformance of the Morningstar UK Smaller Companies peer group weighted average performance (NAV total returns of c. 19.7%), and of the Numis Smaller Companies excluding investment companies index (c. 12.1%).

NAV total returns relative to peers and Numis Small Companies ex IT Index

Source: Morningstar

Past performance is not a reliable guide to future returns

Although we have seen a sharp recovery in absolute and relative returns within ASIT since 25/09/2020, the managers note that they believe there to be further upside available. Although returns from value strategies since November have generally outpaced those from growth or quality, they believe that strong concurrent absolute returns from growth and quality strategies suggest there remains significant rotational potential into value should many investors re-evaluate their portfolios and seek to up their value weightings. This, they note, may well be catalysed by continued reflationary policies and/or higher bond yields.

Given the fixed-life nature of ASIT, it is possible to calculate the total return potential under a variety of scenarios. Below, we can see the impact of a variety of capital growth assumptions, combined with the impact of any contraction or growth in dividends (as discussed under dividends, current year dividends are likely to fall but the long-term impact remains uncertain). This shows the total return that ordinary shareholders will receive on wind-up in July 2024, and suggests there remains upside even if the nascent value rally proves to be merely a cyclical phenomenon (which the managers do not believe to be the case).

Redemption yields

Capital Growth

Terminal NAV

Dividend growth p.a.

-10.0%

-5.0%

0.0%

5.0%

10.0%

0.0%

84.2p

4.6%

4.9%

5.2%

5.6%

7.1%

5.0%

103.6p

11.4%

1.8%

11.9%

12.2%

13.6%

10.0%

125.2p

17.9%

18.1%

18.4%

18.7%

20.0%

15.0%

149.0p

24.3%

24.5%

24.8%

25.0%

26.2%

20.0%

175.2p

30.6%

30.8%

31.0%

31.3%

32.4%

Source: Aberforth Partners

Despite the recent outperformance, since listing (with 03/07/2017 as the first day of trading) performance conditions have been tougher for ASIT. From listing to 18/05/2021, ASIT has delivered NAV of 13.6%, underperforming the peer group average (NAV total returns of 36.3%) and the Numis Small Companies ex IT Index, which returned 29.7%.

This was a challenging time overall for value strategies, with the MSCI UK Value index underperforming the MSCI UK Growth and Quality indices by c. 28% and c. 17% respectively over the same time period, though the recent recovery in value has reduced this underperformance somewhat. If this can be sustained over the longer-term, it should provide a stylistic tailwind to ASIT.

NAV and share price total returns since listing vs peers and Numis Small Companies ex IT Index

Source: Morningstar

Past performance is not a reliable guide to future returns

Dividend

ASIT shares currently yield c. 4.7% on an historical basis (as at 18/05/2021). However, this is likely to prove misleading as to the level of yield current purchasers will receive in the near future, with the board having guided in their most recent annual results (30/06/2020) that it believed a cut in dividend for the current financial year (FY) 2021 to be necessary. It has subsequently reaffirmed this view at the interim reporting period (ending 31/12/2020). This comes against the backdrop of an extremely challenging environment for dividend generation in the UK, with the London Business School estimating that total dividends from the Numis Smaller Companies index fell by c. 52% in real terms over the calendar year 2020.

ASIT pays dividends twice a year, with the first interim dividend of the current financial year of 0.92p per share having been paid in March 2021. This represented a fall of c. 39% from the first interim dividend paid in the previous financial year.

The decline in the first interim dividend reflected the ongoing uncertain background for revenue generation, with ASIT’s net revenue return per share declining by c. 56% over the six months to 31/12/2020 when compared with the same period in the previous financial year. However, at 1.17p per share, this was sufficient to cover the first interim dividend.

As a relatively young trust, ASIT has had limited opportunity to accrue the same depth of revenue reserves as seen in the Aberforth Smaller Companies trust (ASL) run by the same management team. Nonetheless, as at 31/12/2020 the trust retained c. £3.9m of revenue reserves. However, this figure was prior to the subsequent payment of a first interim dividend of 0.92p per share. When we account for this, but also for the reported differences in NAV including and excluding income (as at 13/05/2021), we estimate that ASIT has remaining revenue reserve cover of c. 0.56x the FY 2020 dividend.

These revenue reserves had previously been dipped into for the second interim payment of the previous financial year 2020, whilst the board awaited better visibility on the final impact on earnings. This will certainly be likely to impact the final level of dividend, but the managers note that they have seen some companies reinstate dividends, and that they anticipate further reinstatements.

We calculate that if no further income were to be received and the board was to fully distribute all current revenue reserves (using our above estimate), ASIT could already pay a second interim dividend of c. 2.4p per share. This would bring the total dividend for the current financial year to c. 78% of the total dividend for FY 2020 (a yield of c. 3.7% on the current share price), but we would stress that this remains an estimate at this time. However, if, as the managers anticipate, ASIT continues to see constituent companies reinstating dividends, we think the year-on-year fall in dividends may well prove notably more muted than first anticipated in the teeth of the crisis.

We also note that the current average historic dividend yield within the AIC UK Smaller Companies peer group is c. 2%. This will not account for potential reductions in dividends from peers.

Dividends and revenue returns per share

Source: Aberforth Partners

Past performance is not a reliable guide to future returns

Management

Aberforth Split Level Income Trust is currently managed by a team of seven managers, six of whom are partners in the management company, Aberforth Partners LLP. The managers work together on all the portfolios Aberforth runs, implementing a consistent strategy across the range. In our view, the partnership structure, the fact Aberforth only runs a limited range of funds, and the major investment into those funds by the investment team all create a strong alignment of interests between managers and shareholders. Notably, we understand that each member of the management team has made further investments in the strategies over the past 12 months.

The six investment partners are Jeremy Hall, Euan Macdonald, Keith Muir, Peter Shaw, Chris Watt and Sam Ford. Sam was recently made a partner following the departure of Alistair Whyte, who was at the time the last remaining founding partner. They are further supported by the recent appointment of Sonya Kim, who joined in March 2021 from Kiltearn Partners.

Despite Alistair’s departure, there is a great depth of experience in the team. Euan joined in 2001 and Keith joined in 2011. In 2016, Chris joined from Jupiter and Peter joined from Kames, and in 2018 Jeremy joined from Nikko. The managers work collaboratively and avoid any single manager being named as ‘lead’ on the trust. Each manager covers a number of sectors, but none are incentivised by their recommendations – which they believe would skew the portfolio toward the best ‘salesman’ – and instead remuneration is tied to the performance of the trust as a whole.

Aberforth Partners runs two closed-ended funds, one open-ended fund (which is c. 10% of total AUM at present) and two other portfolios, with the total AUM at c. £2.3bn as of the end of April 2021. Aberforth has long stated its intention to limit itself to holding a maximum of c. 1.5% of the market cap of the Numis Smaller Companies ex IT Index, and we understand they currently have c. £200m of spare capacity. In 2006 they closed their open-ended fund to new investors because they had reached their capacity limit, reopening it when their share of the index’s market cap had fallen.

Discount

ASIT currently trades on a discount of c. 5.6% (as at 18/05/2021), slightly narrower than the peer group average of c. 6.3%. The current discount level on ASIT is currently tighter to NAV than the average discount since listing (in July 2017) of c. 7.1%.

In line with the broader peer group, ASIT saw its discount narrow sharply from around mid-September 2020 (accelerating from November 2020), in our opinion reflecting broader, global and domestic improvements in the relative outlook for the UK economy and market as compared to global peers.

Since listing, ASIT had generally traded reasonably closely to NAV before widening over much of 2019. Subsequently, the discount tightened somewhat as sentiment towards the UK market improved. After narrowing to close to NAV at the end of 2020, ASIT’s discount subsequently widened again over much of January and then April 2021; we note, with interest, that on both occasions discount widening was driven by share price declines whilst the NAV was flat or gaining. After this occurred over January 2021, the shares subsequently enjoyed a catch-up rally. This, to us, suggests that there perhaps remains scepticism in the value rally as anything more than a cyclical and short-term opportunity, with some participants perhaps trying to time their exit before continued NAV rallies proved them to be premature.

Discount/premium

Source: Morningstar

Charges

ASIT has an ongoing charges figure (OCF) of 1.26%, above the AIC UK Smaller Companies sector unweighted average of c. 1.09% (Source: Aberforth Partners, JPM Cazenove). This includes a management fee of 0.75% of total assets, calculated quarterly. There is no performance fee. The KID RIY at present is 2.1%, above the unweighted sector average of 1.89%, but this is explained by the cost of the ZDPs. (Source: JPMorgan Cazenove). We would note that the relatively small size of assets in ASIT artificially increases the proportional impact of certain, relatively fixed, costs. Management fees are charged 70% to capital, and 30% to income.

ESG

Aberforth Partners looks to incorporate all three considerations of ESG investing into its investment process, with target prices incorporating ESG influences. This, in practice, does not mean operating a quantitative or exclusionary policy on certain investments, but has a greater emphasis instead on engagement with company managements as a (often significant) shareholder. This is typically undertaken privately. The managers have the discretion to vote how they deem appropriate on any resolution that the companies they hold put to shareholders, and will seek to use this discretion to vote against any resolutions that they believe will harm shareholders’ rights of economic interests. The managers report on any votes they have made to the board on a quarterly basis, and on wider governance issues.

Aberforth seeks to interact with company boards, looking to understand the corporate strategy and, where deemed appropriate, looks to implement change. From a business point of view, ASL’s managers believe that incorporation of ESG considerations and strong policies in this regard are important and can improve the value of the underlying company. The team prefer to conduct this activity behind closed doors, but engagement remains an ongoing process.

ASIT currently has a ‘low’ rating from Morningstar Sustainalytics. However, we think this may be slightly misleading, as this is a quantitative score drawn upon the scoring assigned to underlying holdings. As many of ASIT’s holdings will not be scored (being too small to draw attention) on this basis, this likely skews the results somewhat. As a backwards looking metric, it perhaps also skews negatively against strategies which prioritise engagement and improving ESG standards. Aberforth publishes examples of previous engagements on its website, together with a variety of other Stewardship documents. Aberforth Partners is a signatory to the UN PRI and the UK Stewardship Code 2020, and documents assessing how it measures up against these codes are also available on its website.

Fund History

Disclaimer

This report has been issued by Kepler Partners LLP.  The analyst who has prepared this report is aware that Kepler Partners LLP has a relationship with the company covered in this report and/or a conflict of interest which may impair the objectivity of the research.

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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.
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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.
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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.

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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.