This week I am looking at Aberforth Smaller Companies Trust, a FTSE 250-listed investment trust that invests predominantly in smaller UK companies. Aberforth released its results to 31 December 2018 this week, which reported a 15.4% decrease in net asset value per share compared to the previous year, although it performed in line with its benchmark – the Numis Smaller Companies Index. Chairman, Paul Trickett, attributed the negative return to weakness in the UK stock market last year, particularly within the smaller companies segment. Brexit, trade wars, politics and slowing economic activity all weighed heavily on markets and ultimately on the performance of the fund.
Aberforth’s portfolio is weighted approximately 60% towards domestic earners and there was a notable split in the fund’s performance between firms that derive the majority of their revenue from the UK economy and those more dependent on overseas income. The investment trust attributed this to the “overhang” of Brexit. Companies that generate revenue domestically underperformed their overseas earner peers by 24%, reflecting the effect of sterling weakness.
After a challenging 2018, Aberforth looks forward with a degree of optimism. The fund is run by a team of six experienced investment managers, each specialising in a group of sectors, and picks stocks based on the Trust’s value style of investing. This approach focuses on quality companies that are undervalued and often out of favour with investors, offering the opportunity for greater returns when the company returns to favour. This management style has remained consistent and the strategy has proven successful over the long term. Political and economic uncertainty will create buying opportunities as good quality smaller companies become cheaper. It can be difficult for investors to identify small companies with good prospects and the use of collective funds for diversified exposure to this part of the market may be a good solution.