Fund Research

Aberforth Smaller Companies

Last update 30 April 2019

Disclosure – Non-Independent Marketing Communication

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

Investment objective

To achieve a net asset value total return (with dividends reinvested) greater than on the Numis Smaller Companies Index (Excluding Investment Companies) over the long term by investing in a diversified portfolio of small UK quoted companies.

As at:

24/04/2019

Group/Investment

Aberforth Smaller Companies Ord

Ticker

ASL

Management Company

Aberforth Partners

Manager Name

Alistair Whyte;Richard Newbery;Euan Macdonald;Keith Muir;Chris Watt;Peter Shaw;

Association of Investment Companies (AIC) Sector

UK Smaller Companies

12 Mo Yield

2.4% (exc. specials)

Dividend Distribution Frequency

Semi-Annually

Latest Market Capitalisation

£1,146,570,004

Latest Net Gearing (Cum Fair)

2%

Latest Ongoing Charge Ex Perf Fee

0.79%

Turnover Ratio

26.2%

Shares Outstanding

 90,566,351

(Discount)/ Premium (Cum Fair)

-8.7%

Aberforth Smaller Companies (ASL) is the only UK smaller companies trust with an unambiguous value approach, barring its income-focused sister Aberforth Split Level Income.

The long-term track record has been extremely strong, although returns in recent years have been below those of the peer group thanks to the managers’ diligent adherence to a value approach - a style that has been very much out of favour in what has been a growth or momentum driven market. The value approach and the concentration on the smaller end of the market (due to its lower valuations) differentiate the trust from its peers.

The value approach leads to a contrarian tilt to the portfolio, which has in recent years become overweight domestic earners and picked up exposure to resilient retailers that have been sold off on sentiment rather than fundamentals. These exposures have helped the trust in recent months.

The team of managers has extensive experience, with the two remaining founding partners having been involved in running the portfolio since 1990. One of them, Richard Newbery retires at the end of this month (April 2019), leaving a committed team of six experienced investors who follow the same philosophy and approach the company has had since the beginning. The team has significant shareholdings in the trust, and so their interests are well-aligned with the long-term interests of shareholders.

Although the trust aims for total returns, the value approach often leads the company into higher dividend-payers. The historic yield is 2.4% excluding non-recurring special dividends, which compares favourably to a sector average that does include specials of 2.5%. The board is committed to a progressive dividend policy, which has been supplemented by special dividends over recent years. With significant revenue reserves and high average cover for dividends paid by the portfolio holdings, the managers hope that the dividend can grow even through the next cyclical downturn.

The trust is trading on an 8.7% discount compared to a sector average of 7.2%. The trust did trade on a tighter discount than the sector briefly in Q1. In this period many investors bought back into the UK on value grounds, although after the date for “Brexit” was pushed back into the autumn the discount widened again.

Thomas McMahon

Disclaimer

This report has been issued by Kepler Partners LLP.  The analyst who has prepared this report is aware that Kepler Partners LLP has a relationship with the company covered in this report and/or a conflict of interest which may impair the objectivity of the research.

Past performance is not a reliable indicator of future results. The value of investments can fall as well as rise and you may get back less than you invested when you decide to sell your investments. It is strongly recommended that if you are a private investor independent financial advice should be taken before making any investment or financial decision.

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Fund History: Aberforth Smaller Companies

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