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Fund Profile

Aberforth Split Level Income 16 June 2022


Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Aberforth Split Level 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.

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Aberforth Split Level Income (ASIT) uses the advantages of the investment trust structure to create an unusual proposition which marries a high yield and a portfolio with the potential for strong capital growth. The fixed life provision means that there are potentially attractive returns on offer from the narrowing of the discount as the trust approaches its July 2024 wind-up and from dividends, even if there is no gain to the NAV.

The core of the proposition is a small-cap value portfolio. As we discuss under Portfolio, ASIT has one of the most pronounced value biases in its sector. While Aberforth are known for their disciplined value approach, the income mandate has led to this being pronounced in ASIT. This has helped performance as the reflationary rally has given way to a rate hiking cycle which has favoured value overgrowth.

Additionally, ASIT employs a high level of gearing through ZDPs. These do not receive a dividend, meaning ordinary shareholders receive a higher yield. Additionally, they allow for higher returns to ordinary shareholders than those gained on the portfolio.

Looking at published NAVs, we estimate the potential for a Dividend increase this year back to over 4p – we estimate a potential prospective dividend yield of 6.2%. Making some conservative assumptions about the potential for dividend growth in the remaining two years, and considering the current share price discount, we calculate there are potentially highly attractive returns from the dividends and discount narrowing alone of c. 20% before wind-up, even if there is no change in NAV from the current level. We discuss the details under Performance.

Analyst's View

We believe it likely, from the difference in the ex- and cum-income NAVs, that ASIT will generate c. 4.5p of revenues in this financial year, enabling the divided to potentially return to its pre-pandemic trajectory. That would give an attractive prospective yield of close to 6%, which could make the portfolio highly attractive to income seekers. Moreover, if we are right, and if that dividend can be maintained, then a significant income return could be achieved over the next two years to be coupled with a narrowing discount. We estimate investors could generate a c. 20% return from the dividends and the discount narrowing (see Performance), with any NAV, gains a bonus.

ASIT’s portfolio does have a high beta element thanks to the gearing and thanks to the value strategy, which tends to bring with it some cyclicality. This means it could be vulnerable if the current sell-off in the market continues, which may be why the discount persists. That said, the value style looks likely to do better than growth in the near future, thanks to the rate hiking cycle underway in the US and UK.


  • Strong performance potential in cyclical market rally, due to gearing and biases in portfolio
  • Offers diversification by sector and market cap to the typical biases of income investors
  • Fixed life and discount creates downside protection


  • High levels of gearing could exacerbate losses in any further market fall
  • Cyclicality of portfolio increases sensitivity to recession
  • Market falls as the end of the trust’s life draws near could lead to return prospects turning negative
Continue to Portfolio

Fund History

07 May 2024 Thomas McMahon speaks on the Money Makers podcast
Thomas McMahon, Head of Investment Companies Research, appears on the Money Makers podcast to discuss three current themes in the investment trust sector: BCPT and commercial property, ASIT and split-level trusts, and the UK micro-cap sector...
29 Nov 2023 Fund Analysis
ASIT’s managers: Today’s investment opportunity is amongst the best in Aberforth’s 33 years…
09 Jun 2023 Fund Analysis
ASIT has the potential to deliver strong returns in its short remaining life…
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...
14 Dec 2022 Fund Analysis
ASIT offers potentially exciting returns as its planned 1 July 2024 wind-up date approaches…
16 Jun 2022 Fund Analysis
ASIT offers potentially exciting returns as its July 2024 wind-up approaches…
17 Nov 2021 Fund Analysis
ASIT is well-positioned to perform exceptionally well in an economic recovery…
01 Jun 2021 Fund Analysis
ASIT’s portfolio remains highly geared to an UK economic recovery...
26 Nov 2020 Fund Analysis
ASIT’s high gearing and cyclical portfolio mean it could offer exceptional performance potential as the end of the pandemic becomes clearer…
25 Nov 2020 Britannia Redux?
UK equities have been despised for almost five years and could offer extreme rebound potential…
29 Jul 2020 To be, or not to be (geared), that is the question
Gearing is part of the toolkit that trusts use to outperform OEICs. But how is it best implemented?...
27 May 2020 Fund Analysis
ASIT’s gearing allows it to offer a very high yield and strong rebound potential…
12 Dec 2019 Fund Analysis
ASIT is a small-cap value trust, with a yield of 5%...
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
ASLIT is a high yielding smaller companies fund with a disciplined value approach, offering a historic yield of 4.9%...
23 May 2018 Fund Analysis
A differentiated UK small cap income trust, heavily exposed to the domestic UK economy...
23 May 2018 Backing Blighty
We consider the outlook for UK equities as they endure their Brexit induced 'darkest hour'...
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