Fund Profile

Invesco Perpetual UK Smaller Companies 17 March 2021

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Invesco Perpetual UK Smaller Companies. 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

Invesco Perpetual UK Smaller Companies Trust (IPU) is a clearly differentiated trust within the UK Smaller Companies sector. The managers’ approach is as relevant in today’s environment as ever and stands the trust apart from its peers. The team aim to deliver top quartile returns over the cycle with below-average volatility through their ‘valuation aware’ approach to growth investing. This sees them continually re-evaluate their investment theses to ensure that stock valuations on winning stocks are not getting ahead of the business progress.

As discussed under Performance, IPU lagged more growth-orientated peers over 2020, having been too early into cyclical stocks that had been hit very badly by the market sell-off. Trusts with higher technology and growth exposure outperformed. However, many of the companies the managers bought in March and April 2020 have rebounded very strongly since November 2020. As a result, IPU is amongst the top performers of the sector in NAV terms since the announcement of an effective vaccine in November. So strong has the recovery been in some names since then that the team have been selling some holdings and recycling capital back into ’COVID-winners’ which have seen their valuations fall.

The team have a strong focus on investing in ‘quality’ companies and, in their view, it is these companies with solid franchises and strong balance sheets that will be in a good position to take market share when the economic recovery comes.

2020 saw IPU experience a marked de-rating – both in absolute terms but also relative to peers. As it currently stands, IPU trades on a discount of 13.1%, compared to the weighted average sector discount of 4.6%.

Analyst's View

The managers’ discipline in following their investment process is to be credited, in what has seen a full market cycle develop over the period of only 12 months. Jonathan and Robin aim to invest in growth companies at a reasonable price, but also, when prices become unreasonable, to sell. The result is a dynamic portfolio that, during 2020, took a barbell approach, with around 50% of the portfolio in solid, defensive, growth companies and 50% invested in companies exposed to a cyclical recovery. In our view this balance puts the trust at a distinct advantage relative to peers in the current environment, with the return profile perhaps less vulnerable to swings in style factor performance. It is showing in the performance numbers too, and we think shows how well the strategy is suited to the managers’ objective of achieving strong returns with lower volatility than peers.

IPU has experienced a savage derating; having traded on a premium to NAV in early 2020, it now trades on a material discount to both NAV and to the peer group average. At the same time, the fundamental attractions of the trust have not changed and one might argue that the recent performance shines a light even more strongly on its positive attributes for long-term investors. Combined with an announced dividend, supported by capital, representing a yield of 2.9%, we believe investors looking for a balanced way to take advantage of a UK recovery would be well placed to consider IPU.

BULL
BEAR
Consistent investment process has delivered strong results through the market cycle with lower volatility
Given more balanced positioning, may underperform more style-concentrated peers if growth or value sharply outperforms
Highly stable and experienced team
Payment of dividend from capital means trust will remain smaller than it would otherwise
Attractive dividend, offering a significant yield premium to the peer group
Discount could widen out further if pandemic recovery falters
Continue to Portfolio

Fund History

17 Jun 2022 What does more PE activity in the UK mean for investors?
More acquisitions are arguably a sign the UK still offers good value for money…
15 Jun 2022 Staying active
We highlight several alternatives to passive investments for investors looking for core exposure in uncertain markets...
27 May 2022 Fund Analysis
IPU has delivered strong relative performance year-to-date…
25 Mar 2022 Slides and Audio: Invesco Perpetual UK Smaller Companies
Download the presentation and listen to the audio from our 'Ideas for your ISA' virtual Spring event on 15 March...
23 Mar 2022 Fifteen ideas for your ISA
Slides and audio from our event last week, featuring fund managers running money in every major market in the world...
02 Mar 2022 Investing in the UK with investment trusts
How closed-ended funds can help investors in UK companies...
31 Jan 2022 Investing for income with investment trusts
How investment trusts can support your dividend goals…
05 Jan 2022 The UK market’s hidden gems
London-listed small caps have flourished over the past decade and the Invesco Perpetual team believes that’s likely to continue into 2022…
30 Dec 2021 Great expectations
As the last of the mince pies wilts in the fridge, topped with a generous helping of stilton, the Kepler Trust Intelligence team stick a finger in the air and point toward their top picks for the year ahead…
03 Nov 2021 Fund Analysis
With stock-picking once again being rewarded, IPU is performing well…
28 Jul 2021 How are the mighty fallen
Dividend culture as we knew it is dead, according to Kepler's David Johnson, but investment trusts offer a solution...
26 May 2021 Stand and deliver
Is a high OCF daylight robbery or should investors keep calm and carry on? Our analysts debate the perennial question…
17 Mar 2021 Fund Analysis
IPU is back up the performance tables once again, thanks to the managers’ valuation led approach...
06 Jan 2021 This time next year Rodney...
We review the performance of the team’s ‘top picks’ for 2020 – including some proper plonkers – and place our bets for the year ahead…
25 Nov 2020 Britannia Redux?
UK equities have been despised for almost five years and could offer extreme rebound potential…
19 Nov 2020 Fund Analysis
On a material discount once again, IPU looks attractive for long term investors...
11 Nov 2020 Now that's what I call a discount!
Presentations and audio from our conference focussed on discount opportunities in the investment trust sector…
11 Nov 2020 Slides and Audio: Invesco Perpetual UK Smaller Companies
View the presentation and listen to the audio from our 'Discounts in Focus' event on 05 November...
22 Oct 2020 Spotlight on discounts
As our event focussed on discounts approaches, we update our portfolio of discount opportunities and review discounts across the wider IT universe…
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...
17 Jun 2020 Jonathan Brown & Robin West
This stockpicking duo have managed the Invesco UK Smaller Companies trust as a team since 2014...
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...
01 May 2020 Fund Analysis
IPU has performed defensively during the selloff, and now trades on a small discount once again...
11 Mar 2020 Seeking big opportunities in UK smaller companies
20 Nov 2019 Making the grade: Kepler's rated trusts report strong performance in 2019
Earlier this year, we launched our new ratings for income and growth. Since then, the 40 trusts to have been awarded the elite Kepler Trust Intelligence ratings have performed strongly…
30 Oct 2019 Steady hands lead to smaller companies success
Invesco Perpetual UK Smaller Companies offers investors a proven approach to a particularly compelling sector...
15 Oct 2019 Fund Analysis
Fundamental stock pickers, aiming to achieve top quartile performance with below average volatility…
06 Sep 2019 Realising potential on the financial front line
Invesco UK Equities managers Jonathan Brown and Robin West discuss three stocks that have fulfilled their investment thesis over the last few years...
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…
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'....
21 Mar 2019 Fund Analysis
A UK smaller companies fund which aims to achieve above average returns through the cycle with lower volatility...
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...
13 Dec 2018 Efficiency is everything
With fee structures under increasing scrutiny, we analyse which trusts limit their costs without sacrificing standards...
24 Oct 2018 Fund Analysis
A consistent and cautious approach has contributed to Invesco Perpetual UK Smaller Companies outperforming over the longer term...
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...
15 Aug 2018 The income edge
Last year saw investment trusts soar in popularity among both retail investors and wealth managers. We examine why this has happened, as well as the structural advantages of investment trusts for income-hungry investors...
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 UK smaller companies fund which aims to achieve above average returns through the cycle with lower volatility...
08 Jun 2018 Unearthing opportunities in smaller companies
Jonathan Brown and Robin West, UK Equities Fund Managers, explain how they identify prospects in the small cap market and how they have applied it to their portfolios.
05 Apr 2018 The search for discounted yield
We scour the investment trust universe for trusts offering chunky yields on a discount...
24 Oct 2017 Fund Analysis
A smaller companies portfolio with a strong track record and an experienced management team offering an unusually high income...
View all

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