Last updated 09 September 2019

A highly concentrated portfolio, with a focus on capital preservation, makes for an interesting mix for investors in the current volatile market conditions…

Disclosure – Non-substantive Research

This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. With this commentary, Kepler Partners LLP does not intend to influence your investment firm's behaviour. 



ScotGems (SGEM) was launched June of 2017, and aims to deliver long-term capital growth from a portfolio of small cap companies operating in emerging markets. Managed by Stewart Investors, with Ashish Swarup as lead manager, the trust has a highly concentrated portfolio with just 25 holdings.

The manager’s investment style is inherently conservative, focusing on the downside risks as well as on the upside potential of any investment. Capital preservation is deemed as important to the manager as capital growth and this means that the trust has an extremely low beta and standard deviation relative to peers. Ideas are generated through the manager’s vast network of connections, and the team anticipate meeting over 1,000 companies over a year. This is a key part of the process, with the manager looking to recognise company ambitions, expectations and the way in which the company is run.

Since the inception of the trust two years ago, the trust has struggled in performance terms. Since launch, the trust has delivered -2.9% NAV total returns. In comparison, the trust’s ‘comparative indices’, the MSCI ACWI, MSCI ACWI Small Cap and MSCI Emerging Markets, have delivered NAV total returns of 19.1%, 7.3% and 7.3% respectively. Much of this is due to the strict valuation and quality criteria the manager has, and the fact that the most expensive companies have been those that have performed the strongest. Alongside this, the company has been deploying cash during this time and even at this stage has 13.1% of the portfolio in cash. Performance has improved year to date, with the trust delivering NAV total returns of 1.3%. Nevertheless, the trust has still struggled relative to peers and the company’s comparative indices.

After reaching heights of a 6% premium after launch, the trust has seen considerable discount volatility since then, and shareholders have found the discount widening to a c. 15% discount level. Since then, the discount has narrowed and the trust currently trades at close to 8% below par.

Kepler View

Despite the concentrated nature of the portfolio, the managers are highly focused on preserving capital and this is reflected in the trust’s exceptionally low standard deviation (7.93%) and beta (0.23) relative to peers. However, this cautiousness, along with the strict quality and valuation criteria, has meant that the performance has been poor relative to peers and the benchmark since inception. Unfortunately for the manager, the most expensive stocks have been the ones that have performed the strongest over the past year or so. Alongside this the portfolio has not been fully invested, and even at this stage the company has 13.1% in cash. However, ScotGems’ capital protection approach could be more appealing now that we finally appear to be reaching the end of the global economic expansion after the financial crisis. This may be why the discount has come in from its lows to 8%.

bull bear
Strong capital protection characteristics Poor performance since inception
Trading on an attractive discount High charges
Widespread connections offers the manager unique opportunities


ScotGems (SGEM) is managed by Ashish Swarup with deputy Tom Allen. The pair invest in emerging market small caps (defined as those with a market cap below $2.5bn) but are inherently conservative, focusing on the downside risks as well as on the upside potential of any investment. Capital preservation is deemed as important to the manager as capital growth, illustrated by the low volatility of the trust as we discuss in the performance table. A key part of this is identifying companies who are controlled and run by responsible management.

Ideas are generated through the manager’s wide network of connections, and the previous years have seen the managers conduct over one thousand investee meetings per annum. This is a vital part of the process, helping to understand company ambitions, expectations and the way in which the company is run. Alongside meeting the company, a huge emphasis is placed on meticulous fundamental research and five aspects are inspected by the team:

  • Stewardship
  • Long-term
  • Quality
  • Growth
  • Valuation

For each potential investment a comprehensive report is then prepared, exploring various aspects including financial analysis, management and board quality, sustainability and background. Every investment decision will also include a macro assessment, as well as information regarding environmental, social and governance factors.

top ten largest holdings

Stock name
Stock name
Tata Global Beverages
Unilever Nigeria
Philippine Seven
RCL Foods
Youngone Holdings
Batu Kawan
Coca-Cola Icecek

Source: Stewart Investors

The end result is a portfolio of 20 to 30 holdings, and currently the portfolio is made up of 25 companies. This is comfortably the most concentrated in the AIC Global Smaller Companies sector. The company has not set any restrictions for geographical regions or sectors, but the single largest investment will not exceed 15%.

The manager has stated that he envisages the portfolio to be tilted towards Asia Pacific and this can be seen in the geographic exposure below. The largest exposure is towards India, Singapore and Indonesia. Cash is also still a large portion of the portfolio, as investing the portfolio fully has taken longer than expected in the current market.

Regional Allocation

Source: ScotGems

In terms of sectoral allocations, comfortably the largest allocation is towards consumer staples at 41.6%. In comparison, the benchmark has just 8.3% in the sector. Consumer discretionary (12.7%) and materials (6.4%) are the only other sectors to make up overweight positions.

Sector Allocation

Source: ScotGems


Although the managers hold the ability to gear, at this stage the company does not intend to. Still, if a decision was made to start to utilise gearing, it would be up to a maximum of 20% of the company’s net assets.


Two years on from the launch, it has not been easy going for SGEM. Over the period since inception the trust has delivered -2.9% NAV total returns, in comparison, the trust’s ‘comparative indices’, the MSCI ACWI, MSCI ACWI Small Cap and MSCI Emerging Markets, have delivered NAV total returns of 19.1%, 7.3% and 7.3% respectively. Some of this can be attributed to the strict quality and value criteria the manager has and the fact that many of the suitable companies have remained expensive, with stock markets hovering near record highs. This has meant that the process to deploy cash has been slower than expected. Alongside this, the company’s holdings in Africa, specifically Nigeria and South Africa, where markets have been especially depressed, have endured some pain since inception. Both countries are currently going through prolonged recessions.


Source: Morningstar

As can be seen below, performance has continued to struggle into 2019, with the trust delivering NAV total returns of 3.3%. In comparison, the company’s comparative indices, the MSCI ACWI, MSCI ACWI Small Cap and MSCI Emerging markets, have delivered 18.6%, 11.3% and 8.2% respectively, while the AIC Global Smaller Companies peer group has returned 12.5%. This has mainly been due to stock specific factors, including the torrid performance of RCL Foods, Unilever Nigeria and Cyient over the past six months.


Source: Morningstar

Looking forward, the managers remain confident in their bottom-up stock picking approach and believe that their quality criteria, which focuses on the concept of stewardship and backing long-term owner managers, will drive returns in the future. Although recognising the poor returns since inception, the manager also recognises that they are long-term investors who ignore short-term noise and consensus. Instead, they plot out what a business like this could look like in ten years’ time.


The board has no specific policy for levels of income or dividends and, in the early years of the company, it is not anticipated that dividends will be paid. However, if the income exceeds expenses in the longer term, the board expects to pay dividends.


The trust is run by Stewart Investors, a team of investment professionals who manage portfolios across the world, including Asia Pacific, emerging markets, frontier and Latin America. The trust is headquartered in Edinburgh.

It is not to be confused with First State Stewart Asia (managers of Scottish Oriental Smaller Companies Trust), which was part of the same management company as Stewart Investors, until the companies split in 2015.

The Stewart Investors’ investment team is comprised of 27 analysts, located in Edinburgh, London, Singapore and Sydney. The team shares the same investment philosophy based upon searching for responsible stewardship through a bottom-up, research-concentrated investment approach.

Ashish Swarup is the lead manager, specialising in the allocation of small cap companies for the portfolio. He has over a decade of experience in managing equity investments and prior to joining Stewart Investors, he was Portfolio Manager of Global Emerging Markets at Fidelity. Supporting him, Tom Allen is the co-manager. Ashish and Tom also work together on the all-cap Stewart Investors Asia Pacific (ex-Japan) and global emerging markets funds.


The first three months post-inception saw the trust trade on a relatively large premium. Nevertheless, after reaching heights of 6%, the trust has seen considerable discount volatility since then and shareholders found the discount widening to as wide as 15%, before narrowing recently to around 8%. As can be seen in the graph below, this volatility has not been uncommon in the global smaller companies sector, with trusts ranging from a discount of 26.5% to a 2.4% premium.

The board has no discount control mechanism in place, and it is not currently the board’s policy to buy back shares.


Source: Morningstar


The trust has an annual management charge 1% of NAV, and an ongoing charge of 1.47%. This is towards the expensive end of the AIC Global Smaller Companies sector, where the weighted average currently sits at 0.6%. With this said, SGEM is considerably smaller than its peers and as such does not benefit from economies of scale like others.

The KID RIY for the trust is 1.92 relative to the sector weighted average of 1.26. However, it should be noted that calculation methodologies can vary among companies.


Fund History

Related Research

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Key facts

Investment objective

ScotGems aims to provide long-term capital growth by investing in a diversified portfolio of small cap companies listed on global stock markets, across a range of sectors.

As at:






Management Company

Stewart Investors

Manager Name

Ashish Swarup; Tom Allen;

Association of Investment Companies (AIC) Sector

Global Smaller Companies

12 Mo Yield


Dividend Distribution Frequency


Latest Market Capitalisation


Latest Net Gearing (Cum Fair)


Latest Ongoing Charge Ex Perf Fee


Turnover Ratio


Shares Outstanding


(Discount)/ Premium (Cum Fair)


Daily Closing Price


Source: Morningstar

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1. Is intended to enhance the quality of service provided to you by us and is generic in nature;

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