Fund Profile

Aberdeen Smaller Companies Income 09 December 2020

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by abrdn Smaller Companies 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.

Overview
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Overview

ASCI aims to provide a high and growing dividend as well as capital growth by investing in UK small and mid-caps. It is managed by Abby Glennie and Amanda Yeaman, who draw on the resources of the wider Aberdeen Standard Investments’ (ASI) UK equity team. As discussed under Dividend, ASCI currently yields c. 2.8% and the board has substantial revenue reserves to draw on. The management team seek to grow the yield sustainably, yet ASCI also boasts a high historic yield relative to the AIC UK smaller companies peer group.

Following the merger of Aberdeen Asset Management and Standard Life Investments, management of ASCI was taken over by the current team in September 2018. As discussed under Portfolio, the team has realigned the portfolio in keeping with their own investment style and process. The strategy, which the team has operated for over 20 years in other vehicles, has led to strong performance as discussed under Performance.

The management team seek to understand a range of factors surrounding the underlying holdings, focussing in particular on various growth, quality, and momentum factors. With the team keen to ‘run their winners’, the portfolio contains a range of companies, many long-term winners.

ESG is integrated into the investment analytical process at each stage, and the team have access to ESG specialist analysts within the ASI framework and UK equity team, and a further ESG analyst on the team.

Despite the strong performance, the Discount has widened out to c. 12.4% (as at 07/12/2020) compared to the sector average of c. 3.9%. This direction of travel mirrors moves seen in the broader sector and is, in our opinion, reflective of wider sentiment towards the UK market.

Analyst's View

We think the approach adopted within ASCI can prove supportive to relative returns, with a demonstrated long-term track record of adding value in other strategies operating this investment approach (including the Standard Life UK Smaller Companies Trust (SLS). ASCI has demonstrated a 12-month R2 to SLS of 0.95, demonstrating close alignment. However, ASCI offers a significant yield premium to SLS (currently 2.8% vs. 1.6%) from an area not typically represented in income portfolios, and trades on a significantly wider discount (12.4% vs. 2.6%). For this reason, we include ASCI in our Discounted Opportunities Portfolio. However, discount narrowing may not be an immediate consequence to a broader recovery in UK small-caps, with the most reactive buying activity likely instead to focus on larger, more liquid investment trust alternatives.

ASCI’s historic yield is high relative to the broader small cap investment trust universe, with only five trusts in the sector offering a higher level of historic yield at the time of writing. The majority of those with greater yields have specific policies to pay dividends out of capital, or else utilise highly geared capital structures to boost their yield. ASCI, however, typically seeks to pay dividends based on underlying income generation, looking for sustainable dividends they can grow. Whilst the dividend will almost certainly require support from revenue reserves in the current financial year, over the longer-term this focus on sustainable dividend growth should prove attractive in our view.

bull bear
Approach has long-term proven track record
Small size of trust means it is likely too small for many institutions
Dividend appears well supported for the near term by ample revenue reserves
Charges are relatively high, a consequence of the relatively small size of assets under management
Discount is wide on an absolute basis and relative to peers
Gearing can exacerbate downside, as well as amplify upside
Continue to Portfolio

Fund History

26 Jul 2023 Our board and saviour
Boards are proving their value as discounts languish…
18 Jan 2023 Fortune favours the brave
Our research suggests a recession has already been priced into small cap trusts, but risks abound...
02 Dec 2022 Fund Analysis
ASCI offers a differentiated way to invest in UK smaller companies…
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…
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…
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 our list of discount opportunities...
13 Feb 2019 Sweet treats
Eight trusts with the potential for strong returns, currently sitting on unusual 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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