Fund Profile

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 is benefitting from a market environment which favours value over growth…
Overview

Aberforth Smaller Companies (ASL) is one of relatively few options for value investing in the UK small cap space. While value was out of favour for many years prior to the pandemic, since then it has staged a comeback and ASL has performed strongly as a result (see Performance). While ASL has outperformed its benchmark and sector in 2022 year to date, this has been in a falling market. Perhaps as a result of general risk aversion, the Discount has widened to 16%.

ASL is team-managed using a disciplined style which has been honed since the trust launched in 1991. There is a seven-strong team of managers who operate within a collegiate structure intended to align the interests of shareholders and managers. The core aim is to identify companies which are trading at low valuations, ideally when their earnings are at cyclical lows too. The managers aim to hold until valuations reach fairer levels, and then sell out. Over the years this pragmatic approach has seen the team roll into and out of companies, building up knowledge and experience which can sometimes rival that of the companies’ management teams themselves.

The investment objective is to maximise total return, but the value discipline means the managers are led to companies with a higher yield than average. As we discuss under Dividend, the board had built rock solid reserves prior to the pandemic, which meant the dividend was raised in 2020 and 2021 despite the impact of the crisis on underlying revenues – and extensive reserves still remain. Considering the share price discount, the historic yield is now 2.8%.

Analyst's View

ASL had the wind at its face for a number of years prior to the pandemic, but now looks very well situated in the current environment. Like the Sage of Omaha Warren Buffet, the team have stuck to their guns and implemented a disciplined value approach which has outperformed the index since launch and, following the return to form post-pandemic, over three-, five- and ten-year periods too, despite the significant outperformance of growth earlier on in these timeframes.

Value has typically outperformed growth in a rising interest rate environment and, given the pace of inflation, a hiking cycle looks likely to persist for some time. Furthermore, we have experienced a rapid deflation of a bubble in technology and ecommerce stocks akin to that we saw in 2000/2001, which we highlight below to have been a particularly good environment for ASL (see Performance). Additionally, the UK looks cheap versus international competitors with the impact of Brexit on valuations yet to be reversed.

We acknowledge that small caps are more volatile and may suffer more than large caps in a falling market, which may have led to the recent widening of the trust’s discount. Calling a bottom in the market is hard, and there may be more pain to come, but ASL’s discount of 16% looks attractive as a long-term entry point.

Bull

  • Disciplined value strategy that has outperformed over long run
  • Wide discount could prove good entry point
  • Consistent approach should lead to more stable diversification benefits in a portfolio

Bear

  • Strong style bias can lead to periods of underperformance
  • Small cap focus could increase sensitivity if market falters
  • Gearing increases 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 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
Aberforth Smaller Companies (ASCoT) is the only UK smaller companies trust with an unambiguous value approach...
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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