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
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Overview

On 10/01/2022 Aberdeen Smaller Companies Income announced its corporate name change to abrdn Smaller Companies Income Trust plc, with effect from 7 January 2022.

Click here to read the RNS announcement

Aberdeen Smaller Companies Income (ASCI) trust aims to provide a high and growing dividend as well as capital growth by investing in UK small- and mid-caps. Managed by Abby Glennie and Amanda Yeaman, who draw on the resources of the wider Aberdeen Standard Investments’ (ASI) UK equity team, ASCI’s portfolio is comprised of companies which the managers believe are compelling long-term growth stories exhibiting operational momentum.

As discussed under Portfolio, ASCI is constructed utilising a mixture of quantitative and qualitative inputs. Abby and Amanda note that recent reporting updates from their holdings show increasingly optimistic signs, with companies beating expectations and upgrading their earnings outlooks.

The team also note the extensive ESG input to the investment process is helping them identify where growth opportunities are sustainable, and which areas are experiencing operational momentum. To further aid in this research, they have added an on-desk ESG analyst to the team over the past 12 months.

Abby and Amanda report that all constituent companies are now paying a dividend, despite the challenges that the uncertain macroeconomic backdrop of 2020 posed for revenue generation. ASCI currently has an historic yield of c. 2.4% (as at 07/06/2021); as discussed under Dividend, this is notably higher than the average from the AIC UK small-cap sector.

The dividend yield received by new shareholders at present is further boosted by the trust trading at a Discount of c. 12.8%, substantially wider than that seen across the sector as a whole. As we discuss under Performance, this is despite ASCI outperforming over Abby’s tenure (with NAV total returns of c. 35.8% against a sector average of c. 25.3%).

Analyst's View

ASCI’s wide discount continues to look like a potential opportunity to us, and for this reason we continue to include ASCI in our Discounted Opportunities Portfolio. If the trust can resume the outperformance seen over the current management team’s tenure (and we think the pick-up in performance from the most recent reporting season offers encouragement in this regard), then we believe the market may well re-evaluate this trust and this could potentially drive a further boost to returns from discount narrowing.

Retaining substantial revenue reserves, ASCI’s dividend looks to us well placed to ride out any continued challenges to revenue generation from the uncertain macroeconomic backdrop. However, with all constituent companies now paying a dividend and the managers reporting strong operational updates from numerous holdings, we think this may in any event prove unnecessary. For income investors, whilst a headline historic yield of 2.4% may hold relatively limited attractions in an absolute sense, the relative yield premium to the small-cap sector and the potential to grow this further may change perceptions (as well as small- and mid-caps often having endogenous drivers of growth, and thus potentially offering diversification of revenue generation in a balanced portfolio). Although the dividend in FY 2020 was marginally lower, this cut seems to have been undertaken to ensure greater certainty of future income growth. With a wide discount further boosting the effective yield received by new buyers, we think this could be an attractive entry point.

bull bear
Team's approach has long-term track record of success Small level of assets may deter institutional investors (and prolong wide discount)
Yield premium to sector with a dividend that looks well supported by revenue reserves Gearing can exacerbate downside (as well as amplify upside)
Discount is wide relative to peers and a potential opportunity
Likely to lag in strong reflationary cyclical rallies, such as that seen in Q4 2020
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…
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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