Fund Profile

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Aberforth 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
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Overview

Aberforth Smaller Companies Trust (ASL) owns a portfolio of cheap companies which the managers expect to outperform their more expensive peers. ASL has been team-managed since it was launched in 1990, and has outperformed the Numis Smaller Companies ex IT Index significantly since then.

In more recent years the value style has been out of favour, and ASL has struggled relative to its growth-oriented peer group. As we discuss in the Performance section, the end of last year saw an outstanding quarter of outperformance which was brought to an end by the unforeseeable event of the pandemic.

The resulting market decline now sees ASL on its lowest month-end portfolio valuation since March 2009, which subsequently led to strong returns over the following five years. The managers are investing in their own portfolios and preparing to build up gearing to take advantage of low valuations in the companies most likely to prosper through the other side of the current crisis.

Aside from total-return potential, ASL is also in a strong position with regards to the dividend. Having fallen onto an 11% discount, the historical yield is 3.7%. Although the managers say that they expect to see 50–60% dividend cuts on the market and on their portfolio in 2020, ASL has 2.4 times last year’s dividend in reserve. This means the board has the firepower to maintain or grow the dividend should it wish to.

Following the coronavirus crash, the managers have been through the portfolio with a fine-tooth comb. They have made few changes to their portfolio as a result, remaining confident in most of their business models.

Analyst's View

ASL had a stonking fourth quarter last year, and the coronavirus crisis has been a cruel blow for shareholders who were finally being rewarded for their patience after a great bull market for growth over value. However, we think that quarter shows the potential in the portfolio in an improving economic environment.

The managers tell us their base case is for a recovery to start towards the end of the second half of the year, and on their expected course for portfolio company earnings the portfolio’s EV/EBITA will drop into the single figures for 2021 and 2022. Clearly if the crisis does clear and the UK economy can restart vigorously, there is huge outperformance potential in such a cheap portfolio, particularly as it does not include the most troubled areas which large-cap value strategies have been led into (banks and energy).

A lot rests on the course of the pandemic and the policy decisions made to tackle it, as it does for all investment strategies at this point in time. However, investors in ASL have the cushion of cheap portfolio valuations, a discount wider than peers’ (which was close to par in 2019) and very healthy dividend reserves. This means it is entirely in the board’s power to maintain or grow the 2020 dividend – far from a common situation in the market this year.

bull bear
Extremely cheap portfolio, at a level which has led to strong five-year returns in the past Low-rate environment could be unhelpful for value in the medium term
Very strong dividend reserves, giving the board flexibility in the dividend crisis Outlook for the UK and global economy is very uncertain, with potential downside
UK-revenue overweight and intention to gear mean the trust could be a geared play on a domestic recovery Any rise in gearing would increase sensitivity to falling markets as well as rising markets
Continue to Portfolio

Fund History

25 May 2022 Fund Analysis
ASL is benefitting from a market environment which favours value over growth…
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 Five small cap trusts on very wide discounts
The UK Smaller Companies Sector is battered and bruised, but bombed out valuations among trusts in the sector look interesting...
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...
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 (ASCoT) 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 What lies beneath
Following our research last year, we analyse the correlation between the performance of value stocks and bond yields and how many investors are unprepared for a change to the status quo...
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...
25 Oct 2017 Patience is a virtue…
We analyse the outperformance of UK small-caps and why it has been so important to take a long-term view...
13 Sep 2017 Big Issue(rs)
We highlight the UK equity trusts that have issued and bought back the most shares over the course of 2017 so far and how these actions have affected shareholders...
12 Jun 2017 MAYDAY!
As the Conservative party founders, we examine the impact of last week’s disastrous election on trusts...
25 May 2017 An opportunity in UK small-caps?
We round up recent recommendations, results and analysis of the latest developments in the UK small-cap sector...
04 May 2017 Size matters
We highlight the potential liquidity and capacity constraints that could hinder open-ended UK smaller companies funds...
03 May 2017 Fund Analysis
A UK small-cap trust with strong value tilt, a highly experienced management team and a long track record of outperformance...
30 Jan 2017 Analyst roundup
An ‘excellent result’ for shareholders in Alliance Trust, and a mixed bag for Aberforth Smaller Companies...
26 Jan 2017 Value: The dawn of a new era?
Amid much speculation that the 'value' style of investing is making comeback, our research shows that the style has previously performed better during bond market sell-offs...
View all

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