Fund Profile

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Invesco Perpetual UK Smaller Companies. 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
Overview

The managers of Invesco Perpetual UK Smaller Companies (IPU) have applied the same approach to stock-picking over several market cycles. They aim to buy high-quality businesses, but not try to be too clever in determining whether the market will favour value or growth stocks in the months ahead.

The portfolio is therefore balanced between what the managers define as cyclical, structural growth and ‘self-help’/recovery opportunities. Their valuation discipline means that they like to take profits, regularly trimming into strength and recycling capital into more attractively valued opportunities. In their view, this helps protect capital in down markets when compared to more growthy peers, leading to a track record of generating good returns with lower volatility.

As we discuss in Performance, IPU lagged more growth-orientated peers over 2020, having moved too early into cyclical stocks. However, IPU is amongst the top performers of the sector in NAV terms since the announcement of an effective COVID-19 vaccine in November 2020. this has been achieved with lower volatility than the peer group average.

The team have a strong focus on investing in ‘quality’ companies, with pricing power and strong balance sheets that will take market share. In the managers’ view, UK stocks are more attractive than those in other markets, and they point to the level of takeover activity as evidence of the value on offer.

Currently IPU trades on a Discount of 13.8% – wider than peers – and offers a significant dividend yield of 3.2% on a historical basis. The board’s policy is to pay quarterly dividends that, in aggregate, amount to 4% of the financial-year-end share price.

Kepler View

The statistics over five years (see Performance) show that Jonathan and Robin continue to achieve their objective of delivering strong returns with below average volatility. That said, the past 18 months have not been an easy period, but IPU is clawing back much of its H1 2020 underperformance relative to peers.

In our view, IPU’s strong track record compared to peers is impressive, given it has been achieved without using leverage. We understand that with the board supportive of employing gearing, the managers hope to put borrowed capital to work if there is a significant market pullback.

IPU’s dividend, and the way it is funded, is in our view a key attraction for shareholders. The board has now reinstated its previous dividend policy of paying 4% per annum from a mixture of capital and income, and as such we see no reason why IPU’s shares should not trade on a premium relative to peers once again. At 3.2% on a historical basis, the dividend yield is attractive, with potential upside owing to the dividend target of 4% of the financial-year-end share price.

IPU’s performance did experience a blip in H1 2020. As we discuss under Performance, the trust is now firmly back in the middle of the peer group. Having reinstated the same dividend policy as previously, there doesn’t appear to be a logical reason for IPU’s discount to stay materially wider than that of peers, which could present an opportunity.

bull bear
Consistent investment process has delivered strong results through the market cycle with lower volatility
Given more balanced positioning, may underperform more style-concentrated peers if growth or value sharply outperform
Highly stable and experienced team
Payment of dividend from capital means trust will remain smaller than it would otherwise
Attractive dividend, offering a significant yield premium to that of the peer group
Discount could widen out further
Continue to Portfolio

Fund History

30 Dec 2021 Great expectations
As the last of the mince pies wilts in the fridge, topped with a generous helping of stilton, the Kepler Trust Intelligence team stick a finger in the air and point toward their top picks for the year ahead…
03 Nov 2021 Fund Analysis
With stock-picking once again being rewarded, IPU is performing well…
28 Jul 2021 How are the mighty fallen
Dividend culture as we knew it is dead, according to Kepler's David Johnson, but investment trusts offer a solution...
26 May 2021 Stand and deliver
Is a high OCF daylight robbery or should investors keep calm and carry on? Our analysts debate the perennial question…
17 Mar 2021 Fund Analysis
IPU is back up the performance tables once again, thanks to the managers’ valuation led approach...
06 Jan 2021 This time next year Rodney...
We review the performance of the team’s ‘top picks’ for 2020 – including some proper plonkers – and place our bets for the year ahead…
25 Nov 2020 Britannia Redux
UK equities have been despised for almost five years and could offer extreme rebound potential…
19 Nov 2020 Fund Analysis
On a material discount once again, IPU looks attractive for long term investors...
11 Nov 2020 Now that's what I call a discount!
Presentations and audio from our conference focussed on discount opportunities in the investment trust sector…
11 Nov 2020 Slides and Audio: Invesco Perpetual UK Smaller Companies
View the presentation and listen to the audio from our 'Discounts in Focus' event on 05 November...
22 Oct 2020 Spotlight on discounts
As our event focussed on discounts approaches, we update our portfolio of discount opportunities and review discounts across the wider IT universe…
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...
23 Jun 2020 Thrown out with the bath water?
IPU’s de-rating has been savage...
17 Jun 2020 Jonathan Brown & Robin West
This stockpicking duo have managed the Invesco UK Smaller Companies trust as a team since 2014...
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...
01 May 2020 Fund Analysis
IPU has performed defensively during the selloff, and now trades on a small discount once again...
11 Mar 2020 Seeking big opportunities in UK smaller companies
20 Nov 2019 Off to the races: Kepler's fund shortlists post strong performance
We check in on our growth, income and annuity income shortlists launched earlier this year, which have performed strongly in 2019 to date...
15 Oct 2019 Fund Analysis
Fundamental stock pickers, aiming to achieve top quartile performance with below average volatility…
06 Sep 2019 Realising potential on the financial front line
Invesco UK Equities managers Jonathan Brown and Robin West discuss three stocks that have fulfilled their investment thesis over the last few years...
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…
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'....
21 Mar 2019 Fund Analysis
A UK smaller companies fund which aims to achieve above average returns through the cycle with lower volatility...
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...
30 Jan 2019 The Growth Portfolio
Our ten investment trust picks for long-term capital growth...
13 Dec 2018 Efficiency is everything
With fee structures under increasing scrutiny, we analyse which trusts limit their costs without sacrificing standards...
23 Oct 2018 Fund Analysis
A consistent and cautious approach has contributed to Invesco Perpetual UK Smaller Companies outperforming over the longer term...
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...
19 Jun 2018 Pretty little things
Many smaller companies managers have been shifting into micro caps in 2018, should investors be following suit?
19 Jun 2018 Fund Analysis
A UK smaller companies fund which aims to achieve above average returns through the cycle with lower volatility...
22 Mar 2018 The search for discounted yield
We scour the investment trust universe for trusts offering chunky yields on a discount...
29 Nov 2017 Fund Analysis
A top-performing trust that invests across Asia and across the market cap spectrum via a value-orientated strategy
25 Oct 2017 Patience is a virtue…
We analyse the outperformance of UK small-caps and why it is so important to take a long-term view...
24 Oct 2017 Fund Analysis
A strong track record and a useful source of income
24 Oct 2017 Fund Analysis
A very high octane but relatively unknown UK small-cap trust that has delivered significant outperformance and undergone a recent make-over...
26 Jul 2017 Apt student
Invesco CIO Nick Mustoe tell us he started out with just a university grant as seed capital for his first portfolio...
04 May 2017 Fund Analysis
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...
View all

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