Aberforth Smaller Companies Trust (ASL) takes a disciplined value approach to investing in UK small-caps, which has generated market-beating returns since launch in 1990. Since the financial crisis, growth strategies have tended to outperform in the UK and globally, and ASL has not been spared.
However, in the past few months there has been a sharp rally in value stocks. This has seen ASL’s share price rise by almost 20% – with the NAV rising and the discount narrowing – illustrating the potential should the ‘elastic snap back’. The managers note that, in terms of the historical price-to-earnings (P/E) ratio, ASL’s portfolio is trading on the widest discount to the smaller companies index in its near 30-year history.
The trust is managed by a team of seven, five of whom are partners of Aberforth. The investment approach is long-term, and the managers are active shareholders behind the scenes. The partnership structure and the managers’ significant investments in their own funds mean that interests are strongly aligned with those of the shareholders, in our view.
Although ASL aims to generate total returns, dividends are viewed as an important part of that return and the value approach means that the portfolio often yields more than the market. The current historic yield is 2%, excluding special dividends. Revenue reserves are healthy, as discussed in the Dividend section.
As sentiment has shifted back towards value strategies since the summer, the discount has narrowed and ASL now trades on a 3.5% discount, compared to an AIC UK Smaller Companies sector average of 6.5%.