Artemis UK Future Leaders (AFL)

Invesco Perpetual UK Smaller Companies (IPU) owns a portfolio of high-quality, small-cap companies that are trading at attractive valuations and have the potential to grow over time. Managers, Jonathan Brown and Robin West, focus on risk-adjusted returns with the goal of creating a portfolio that offers investors ‘sleep at night’ exposure to the asset class. This has been supported by a barbell approach, which balances the portfolio between defensive businesses with robust earning profiles and more cyclically exposed businesses (see Portfolio).

The trust also pays a Dividend of c. 4%. This comes from a combination of underlying revenue generated by the portfolio and a contribution of capital. As a result of low valuations in the market, the contribution to the dividend that is coming from the underlying income has increased significantly.

The managers began to add more to their cyclically exposed companies in 2023 which has led to some strong performance in the recent rally. Despite this, the managers believe market valuations remain attractive, and the recovery from these valuations has historically led to strong returns over the following couple of years (see Performance).

The managers have reflected their positivity in the trust’s Gearing position. This has historically been used gearing sparingly, but the managers have increased the level to c. 6.5%.

Despite the short-term pick-up in NAV performance, the Discount on the shares has widened to c. 15%. This is almost one standard deviation wider than the trust’s own five-year average.