Fund Profile

Scottish Oriental Smaller Companies 31 May 2019

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Scottish Oriental 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

Scottish Oriental Smaller Companies Trust (SST) aims to generate capital growth from a portfolio of Asian ex Japan smaller companies which are selected for their long-term growth potential. Manager Vinay Agarwal looks for high quality companies trading on attractive valuations and aims to hold them for three years at a bare minimum, but ideally for much longer.

Vinay took over in 2016 and has revivified the portfolio, accelerating the concentration of holdings initiated by previous manager, Wee-Li Hee, and increasing the focus on a new generation of businesses with strong competitive positions in growing markets. Downside risks are a key consideration. Vinay takes an absolute return mindset to investment, in other words aiming to limit the loss potential even in down markets. The trust is running a cash weighting of 7.7% as Vinay thinks valuations are too high to justify being fully invested, and the trust has been net cash ever since he took over management.

Although performance hasn’t reached the heights of the early 2000s and 2010s, when the trust generated 23% a year for investors (over the ten years to 2013), SST has managed to outperform the MSCI AC Asia (ex Japan) Small Cap Index over the past five years despite the disruption of a number of management changes between 2013 and 2016 and the retirement of two long-standing team members. The Trust also managed to outperform in the falling markets of 2018, testament to the value of the manager’s quality-focused investment thesis.

The objective of the trust is to grow capital, and so dividends are not explicitly targeted. That said, we understand the board is keen to at least maintain the dividend and it has held it at 11.5p for the past six financial years, making use of the revenue reserve to do so. The yield is currently 1.2%.

SST’s discount has been stubbornly wide in recent years, over a period in which - unusually - small caps have underperformed large caps in the region. This discount may also be the result of lingering uncertainty over the management of the trust from 2013 to 2015, as well as underperformance in 2017 when China and more momentum-driven strategies outperformed. The trust is now trading on a 12.6% discount compared to an AIC Asia Pacific ex Japan sector average of 4.8%.

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Fund History

20 Apr 2022 On the hunt
We review discounts in the investment trust space against a backdrop of harsh conditions...
12 Jan 2022 Bargain hunt
We survey the discount opportunities in the market and update on the performance of our Discounted Opportunities Portfolio…
01 Dec 2021 Fund Analysis
SST is “better positioned than ever” following strong 2021 performance…
21 Oct 2021 Results analysis: Scottish Oriental Smaller Companies
SST’s tilt toward India has contributed to a strong set of results this year…
14 Jul 2021 Grade inflation
We look at how our discounted opportunities portfolio has done in the first half of the year and update on the performance of our long-term rated funds…
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…
14 Apr 2021 Wide Boys
We review our portfolio of chonky discounts as one star performer hits its target…
14 Apr 2021 Fund Analysis
SST has performed strongly after past global crises thanks to its preference for quality companies…
14 Jan 2021 Get 'em while they're hot!
We review the widest discounts in the investment trust universe and look at our selection of attractively cheap trusts…
04 Nov 2020 Fund Analysis
SST outperformed strongly after the last global economic crisis in 2008 and is trading on a wide discount…
07 Oct 2020 Five ways to play Indian equities
India is struggling economically – but could there be a value opportunity in the stock market?
18 Mar 2020 Their darkest hour?
We update our shortlist of discount opportunities...
05 Mar 2020 Don't panic: the case for investing in Asia this ISA season
We examine the relationship between stock market and GDP growth, before debating the case for an allocation to Asia...
02 Oct 2019 Fund Analysis
SST’s more defensive approach has served it well in recent choppy markets…
28 Aug 2019 Quality street: can the dominant style continue to outperform?
For several years, quality as an investing style has dominated, outperforming both value and growth. We examine why the case for quality remains strong and the importance of taking an active approach…
03 Jul 2019 Push-me pull-you
Two contrasting influences are dominating the outlook for Asian markets - we analyse them and how Asia trusts are positioning their portfolios in response...
31 May 2019 Fund Analysis
SST has generated strong performance in falling markets, but is still sitting on a wide discount...
19 Apr 2018 Fund Analysis
A conservatively managed Asian equity portfolio which has drifted out to a double digit discount on the back of recent underperformance...
19 Apr 2018 What now for Asia?
We examine battered Asian equities amid talk of a trade war between the US and China...
30 Nov 2017 Race ready?
We analyse the outlook for emerging markets and, in particular, the genuine active funds that focus on them…
01 Jun 2017 Fund Analysis
A small-cap Asia trust run with a keen focus on capital preservation that has delivered strong outperformance with low levels of volatility...
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