TIDMASL
Aberforth Smaller Companies Tst PLC
17 May 2019
Aberforth Smaller Companies: New research
17/05/19
-- 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...
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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.
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