Fund Profile

abrdn UK Smaller Companies Growth 20 May 2024

Disclaimer

This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.

Overview
AUSC’s quality growth portfolio could benefit from a change in market style…
Overview

abrdn UK Smaller Companies Growth (AUSC) owns a portfolio of equities, which managers Abby Glennie and Amanda Yeaman identify by looking at three key factors: quality, growth and momentum. They are supported by the team’s in-house proprietary screening tool, Matrix, which is a multi-factor model that filters the universe by these factors, based on fundamental analysis (see Portfolio).

This approach gives the portfolio a strong growth bias, which has had an impact on Performance. Whilst this style bias has been positive since the trust’s launch, it has been a headwind in the past couple of years as higher inflation and interest rates have led to a value rally. However, the managers believe the outlook for their companies is improving, and that valuations are very compelling. In order to capture this, they have increased the Gearing of the trust to one of the highest levels in the past five years.

The trust has fallen to a wide Discount in the past two years as economic conditions have impacted the prospects for growth stocks and smaller companies. The board has been active with buybacks, with the aim of keeping the discount narrower than 8%.

One outcome of the widening discount and low valuations is an improved income picture for AUSC. Dividends have not traditionally been a major feature but have now grown to over 11p per share, representing a yield of c. 2.5% (see Dividend).

Analyst's View

AUSC offers investors exposure to the lower end of the UK market-cap spectrum that is not readily available through passive investment. The managers’ focus on quality, growth and momentum factors has led to a portfolio with a strong bias to growth stocks, which has delivered periods of significant outperformance over the last 20 years. This has been driven by the trust’s repeatable process, which despite the retirement of the previous lead manager, we believe means investors can expect a consistent approach that provides exposure to the high-growth opportunities in the UK small-cap market.

Whilst the managers’ investment style has struggled in the short term, company valuations have arguably fallen accordingly. Furthermore, Abby and Amanda highlight that quality as an investment factor often performs best after value rallies end, a point that they argue we are close to, if not at. As such, they argue their companies are trading at compelling valuations just as the market is turning in their favour (see Performance).

What the team see as compelling valuations are arguably being reflected in the increased yield of the trust, which is currently 2.5%. This is generated by a portfolio of quality growth small-cap companies, meaning the dividend streams are likely to be significantly differentiated to other trusts that generate income and could be complementary to investors’ portfolios in our opinion (see Dividend).

The trust also is trading at a wide Discount versus its own history, which could prove an attractive entry point should the managers’ investment style return to favour.

Bull

  • Consistent process that has delivered significant outperformance since inception
  • Trust trades at a wide discount to NAV, with significant share buybacks
  • Low valuations mean a higher yield, from differentiated sources to traditional UK equities

Bear

  • Growth style has been a significant headwind for the past couple of years
  • Trust has increased gearing, which can amplify risks, and is now at a relatively high interest rate
  • Stocks may be held as they grow into large caps, leading to above average mid-cap exposure
Continue to Portfolio

Fund History

20 May 2024 Fund Analysis
AUSC’s quality growth portfolio could benefit from a change in market style…
05 May 2020 Kepler Rated: Standard Life UK Smaller Companies
Run by Harry Nimmo, SLS offers investors a portfolio of high quality growth stocks...
19 Feb 2020 Fund Analysis
Currently trading at a discount to peers, SLS has an impressive long-term track record…
02 Jan 2019 Fund Analysis
Standard Life UK Smaller Companies has a relatively concentrated portfolio of quality growth stocks held for the long run...
12 Sep 2018 Fake news...
Small cap funds, despite their reputation to the contrary, are less volatile and have delivered better risk adjusted returns than their large cap peers...
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
A 'quality growth' focused small-cap trust with a long-term track record of outperformance and a buy and hold approach...
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...
07 Jun 2017 Omnishambles...
Given the huge levels of political-induced uncertainty, we analyse recent drivers and themes within the UK equity market ahead of the upcoming election
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...
02 Mar 2017 Building confidence in private equity
SL Capital Partners' Roger Pim highlights the major changes within the Standard Life Private Equity Trust...
24 Nov 2016 Investment trusts vs OEICs: The definitive guide
We take a look at how investment trusts really stack up against their open-ended fund rivals...
09 May 2016 Building for success
Standard Life Investments Property Income Trust fund manager Jason Baggaley says UK property is at an inflection point...
04 May 2016 The ultimate arena for stockpicking
We examine funds which invest in smaller companies, which have invested their large cap peers over many decades...
23 Feb 2016 Nimmo warns that his trust’s ‘extraordinary returns’ are unlikely to last
Standard Life UK Smaller Companies investment trust manager Harry Nimmo thinks rotten investor sentiment will make 2016 a difficult year…
View all

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