Fund Profile

Aberforth Smaller Companies 28 June 2024

Disclaimer

This is a non-independent marketing communication commissioned by Aberforth Partners LLP. 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
ASL’s valuation discipline has delivered good returns, supported by an impressive M&A hit rate…
Overview

Aberforth Smaller Companies (ASL) has delivered another strong year of performance, significantly ahead of its index and peer group, with its value strategy showing its potential. A combination of strong fundamentals from the underlying portfolio and a high M&A hit rate has continued to have a significant impact on performance. This has also supported longer-term returns, with the trust now materially ahead of its comparators over five years.

Recent Portfolio changes have been driven by the managers’ ‘value roll’ approach, with a number of holdings hitting price targets, which have then been trimmed, and the capital recycled into new ideas, which the managers believe have greater upside. M&A has also been a significant feature for the trust and has led to a number of disposals.

Despite the strong performance, ASL continues to trade at a double-digit Discount that is in line with ASL’s own five-year average and that of the sector, despite the considerable outperformance. The board have been active with share buybacks year to date, which have been the tenth largest purchase in the portfolio in the period, at c. £3.2m.

ASL also has a strong Dividend track record, with 13 years of continuous growth in the ordinary dividend, which is well supported by extensive reserves. The trust often pays special dividends too. The current yield, based on the ordinary dividend, is c. 2.7%.

Analyst's View

Strong recent Performance has shown the effectiveness of ASL’s strategy. The trust has significantly outperformed its comparators over the past year, particularly in 2024, with stock selection the primary driver behind this. The impressive hit rate the managers have had on M&A is the best example of this and has added significantly to performance. This has been further supported by the valuation discipline they have exercised on reallocating the capital, which we believe offers significant future potential.

Furthermore, ASL has also produced an impressive Dividend track record, despite this not being an explicit goal of the managers. The ordinary dividend has grown for 13 consecutive years and the trust has significant reserves to support this going forward. Not only that, but special dividends are also a regular feature, albeit not guaranteed. The ordinary dividend yield is c. 2.7%, though this has the potential to go higher, should dividends continue to grow or should the trust pay a special dividend again.

Despite all of this, the trust remains at a wide Discount, which we believe could offer a compelling entry point for long-term investors. The current discount remains wide, and, in our opinion, reflects more upon the negative sentiment towards UK smaller companies than the success of the strategy. Should this negativity subside, we believe the discount could narrow.

Bull

  • Trust has delivered strong performance driven by good stock selection
  • Growing dividend that is well supported by underlying revenue and reserves
  • Trust is trading at a wide discount

Bear

  • Reasonably unconcentrated portfolio means best ideas can be more diluted
  • Trust is currently overweight cyclical industries, which could struggle in a downturn
  • Trust has employed gearing, which can amplify losses as well as upside potential
Continue to Portfolio

Fund History

28 Jun 2024 Fund Analysis
ASL’s valuation discipline has delivered good returns, supported by an impressive M&A hit rate…
19 Jun 2024 None in, one out
We ask why companies are disappearing from public markets, and if it matters…
10 Apr 2024 Micro-managing
What opportunities exist in the smallest part of the UK market?
10 Jan 2024 Definitely maybe
Fund flows and discounts may shed some light on a once-in-a-generation opportunity…
13 Dec 2023 In-come all ye faithful
Equity income could be a beneficiary of the higher interest environment, with trusts a good way to capture it…
01 Dec 2023 Fund Analysis
ASL’s value approach is well placed to capture the potential of a new market era…
16 Aug 2023 Time to take the plunge
UK smaller companies have historically outperformed after every fall. Is this the moment to brave the uncertainty..?
09 Jun 2023 Fund Analysis
ASL’s value style has boosted performance, but valuations remain very low, and M&A could spark a further lift…
19 May 2023 More UK M&A
The bids keep coming, the valuations stay low…
06 Apr 2023 Fallen Kingdom?
Since the UK was described as a ‘Jurassic Park’ stock market, it has outperformed. Is this a new age for the stock market..?
18 Jan 2023 Fortune favours the brave
Our research suggests a recession has already been priced into small cap trusts, but risks abound...
30 Nov 2022 Fund Analysis
ASL has outperformed since the vaccine rally, and its cheap portfolio valuations have historically led to strong returns…
10 Aug 2022 Get ‘em while they’re hot
Wide discounts in the UK Smaller Companies sector may present long term investors with good entry opportunities…
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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