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.
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.
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.
Kepler Partners is not authorised to market products or make recommendations to retail clients. This report has been issued by Kepler Partners LLP, is based on factual information only, is solely for information purposes only and any views contained in it must not be construed as investment or tax advice or a recommendation to buy, sell or take any action in relation to any investment.
The information provided on this website is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject Kepler Partners LLP to any registration requirement within such jurisdiction or country. In particular, this website is exclusively for non-US Persons. Persons who access this information are required to inform themselves and to comply with any such restrictions.
The information contained in this website is not intended to constitute, and should not be construed as, investment advice. No representation or warranty, express or implied, is given by any person as to the accuracy or completeness of the information and no responsibility or liability is accepted for the accuracy or sufficiency of any of the information, for any errors, omissions or misstatements, negligent or otherwise. Any views and opinions, whilst given in good faith, are subject to change without notice.
This is not an official confirmation of terms and is not a recommendation, offer or solicitation to buy or sell or take any action in relation to any investment mentioned herein. Any prices or quotations contained herein are indicative only.
Kepler Partners LLP (including its partners, employees and representatives) or a connected person may have positions in or options on the securities detailed in this report, and may buy, sell or offer to purchase or sell such securities from time to time, but will at all times be subject to restrictions imposed by the firm’s internal rules. A copy of the firm’s Conflict of Interest policy is available on request.
PLEASE SEE ALSO OUR TERMS AND CONDITIONS
Kepler Partners LLP is authorised and regulated by the Financial Conduct Authority (FRN 480590), registered in England and Wales at 9/10 Savile Row, London W1S 3PF with registered number OC334771.
Fund History: Aberforth Smaller Companies
We look under the hoods of Global sector trusts to see which offer the best diversification prospects for UK investors...
Amid economic weakness, there are high quality European companies delivering long-term returns says BlackRock’s Stefan Gries...
Certain beliefs persist around smaller companies: they are domestic in focus, can be volatile and may be illiquid. For these reasons, many investors often avoid this area of the market. In our view...
We discuss two potential catalysts for inflation - and the assets that could offer a hedge against it...