Fund Profile

Disclaimer

This is a non-independent marketing communication commissioned by abrdn. 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
ASCI offers a growing dividend from a source that could diversify income portfolios…
Overview

abrdn Smaller Companies Income (ASCI) is a trust investing in UK smaller companies, but unlike most in the sector, has a dual mandate of providing both a high and growing dividend along with capital growth. The managers, Abby Glennie and Amanda Yeaman are members of the abrdn Smaller Companies team and follow the in-house investment process that has been refined over several decades.

As discussed in Portfolio, a proprietary quantitative screening tool, known as the Matrix, is used by abrdn to rank companies. The team’s fundamental research is then focussed on the most attractive stocks. Abby and Amanda seek high-quality companies enjoying positive trends in their profitability and operations and strong competitive positioning and management teams. As high-quality companies by definition are not common, Abby and Amanda build a concentrated portfolio of c. 50 stocks to ensure quality does not need to be compromised and their conviction in companies can be fully expressed. As detailed in Performance, the process has delivered outperformance versus the trust’s benchmark since Abby took the reins of the trust in 2018, despite facing periods of stylistic headwinds.

ASCI’s historic yield is 3.1% at the time of writing. Although on an absolute basis, this is not as high as that available in the UK Equity Income sector, it is higher than ASCI’s UK Smaller Companies peers and from a segment of the market where most equity income trusts have little exposure. We also note, as discussed in Dividend, it is growing at a substantial rate (4.9% annualised over the last five financial years). The dividend yield received by new shareholders is currently boosted by the trust trading at a Discount of c. 18.6%., substantially wider than that seen across the sector as a whole and related strategies offered by abrdn.

Kepler View

We think ASCI is a useful option for income investors who want exposure to the growth potential of smaller companies without sacrificing too much yield. (smaller companies being a fundamentally lower yielding asset class than large caps). It could also suit those who want to diversify their sources of portfolio income away from more conventional UK equity income strategies that depend on a handful of large incumbent dividend payers. (e.g. high street banks and oil majors). As noted in our recent strategy article, there is usually a trade-off between current yield and dividend growth, so an investor looking to build a future income stream rather than maximise current yield could find ASCI’s high dividend growth rate more than compensates for the lower current yields versus large-cap strategies.

ASCI is run using the same investment process as the flagship abrdn UK Smaller Companies Growth Trust (AUSC), which Abby co-manages. As noted in the latest update of our Discounted Opportunities Portfolio, the large discount spread between the two trusts to our eyes appears anomalous and is a potential opportunity for a nimble investor to benefit from discount tightening.

The quality focus of the investment process does result in a Portfolio trading at a premium to the market, so ASCI has tended to struggle on a relative basis in cyclical, value-driven rallies. However, as discussed under Performance, ASCI not only benefits from growth headwinds but has tended to outperform in ‘style neutral’ markets. Therefore, if the current value rally peters out ASCI does not necessarily need a market reversal back into growth do well, a style neutral market could also be favourable.

Bull

  • Quality focused investment process has long-term pedigree
  • Offers a higher yield than peers with strong dividend growth
  • Trading at a discount wider than peers which could offer potential value

Bear

  • Trust is below minimum investable size for some professional investors
  • Higher OCF than peers
  • Will potentially lag in value driven rallies
Continue to Portfolio

Fund History

21 Mar 2022 Fund Analysis
ASCI offers a growing dividend from a source that could diversify income portfolios…
16 Feb 2022 Perfectly formed
Our research suggests that investment trusts really are a better way to gain exposure to smaller companies…
15 Sep 2021 Bargains galore
We review our discounted opportunities portfolio, with one constituent rallying more than 30% in just two months…
11 Aug 2021 In at the deep end
Does seeking out wider-than-usual discounts help investors systematically outperform in the UK trust space?
14 Jul 2021 Grade inflation
We look at how our discounted opportunities portfolio has done in the first half of the year and update on the performance of our long-term rated funds…
23 Jun 2021 Fund Analysis
ASCI has outperformed over the current managers’ tenure…
02 Jun 2021 Fortune favours the brave (sometimes)
Our research suggests wide discounts often herald high NAV returns too…
14 Apr 2021 Wide Boys
We review our portfolio of chonky discounts as one star performer hits its target…
22 Mar 2021 Results analysis: Aberdeen Smaller Companies Income
Reporting results for the year ending 31 Dec 2020, ASCI remains a solid trust on a significant discount to peers…
09 Dec 2020 Fund Analysis
Aberdeen Smaller Companies Income (ASCI) has generated outperformance since the change of strategy and currently offers a 2.8% yield…
06 Apr 2020 Fund Analysis
ASCI offers investors both capital appreciation and income from a portfolio of high-quality UK smaller companies…
25 Sep 2019 Fund Analysis
Offering income seekers a chance to diversify their source of dividends, ASCI has a portfolio of smaller companies with strong growth potential…
26 Jun 2019 Measure for measure
In the first of a two-part series, we examine the tools investors can use to assess how active a manager actually is…
01 May 2019 Sweet or sour?
Three months in, we check up on the progress of our discount opportunities portfolio...
13 Feb 2019 Sweet treats
The eight trusts with strong prospects, but wide discounts...
06 Feb 2019 Income for the long haul
With 'ISA season' looming we identify investment trusts which offer long-term, dependable income streams for yield-hungry investors...
01 Feb 2019 Fund Analysis
Under the watchful eye of a new manager, Aberdeen Smaller Companies Income targets income and capital growth from UK smaller caps...
View all

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