Benchmark-beating performance by Invesco Perpetual UK Smaller Companies – Invesco Perpetual UK Smaller Companies Investment Trust (IPU) issued its annual financial report for the year ended 31 January 2018.
Performance
The NAV of the company rose by 23.9%, on a total return basis. In so doing, it outperformed the benchmark index of the company by 8.8%. The Numis Smaller Companies Index (excluding Investment Companies) returned 15.1%. The company also outperformed the FTSE All Share Index by 12.6% over the same period. The discount at the year end was 4.3% (2017: 4.9%).
Positive contributions came from support service, technology and healthcare, while the portfolio’s exposure to the aerospace & defence sector negatively impacted performance.
At the individual stock level, the best performers included:
- Keywords Studios (+169%), which provides language translation, testing and art services to the computer games sector, continued to benefit from growth in the global gaming market and an increased trend to outsource non-core activities.
- Animal pharmaceutical business, Dechra Pharmaceuticals (+69%), which has produced excellent returns for us over many years, had another good year driven by strong organic growth augmented by acquisitions.
- IT services business FDM (+63%) produced further good performance. Its model of training graduates in an IT specialism before placing them with “blue chip” customers continued to enjoy considerable success both in the UK and USA.
- Microgen (+106%), saw earnings growth accelerate as its world leading high volume processing software, Aptitude, won a number of high profile customers.
Disappointments in the period included:
- RPC Group (–19%), which unsettled the market with its pace of acquisitions. The shares have performed well for the company over many years, but the holding was sold earlier in the year.
- The weak oil price in the first half of the year and some operational issues were the factors in the underperformance of Amerisur Resources (–40%). The company has a strong balance sheet and profitable production, so we have maintained the holding for now.
- Defence business Ultra Electronics (–18%) also had a difficult period. The UK Ministry of Defence has reined in discretionary expenditure to cover the increased cost of procuring equipment from the USA, following the currency depreciation in the wake of the Brexit vote. Despite this set-back, the investment manager believes the company has good prospects and took the opportunity to add to the holding.
Dividends
The total dividends for the year was 20.8p (2017: 17.1p) of which 52% (2017:43%) was generated from revenue in the year. The remainder was funded from capital and represents 1.8% (2017: 2.1%) of the year end net assets.
Results of the Tender Offer
In accordance with the terms of the tender offer and following shareholder approval at a general meeting held on 8 June 2017, the company repurchased 20,357,155 shares at a price of 487.05p per share. These shares are held in treasury.
Chairman’s outlook
Ian Barby, chairman, Invesco Perpetual UK Smaller Companies: The year under review saw largely positive market results, despite continued political uncertainty. Continued uncertainty around Brexit and the possibility of further interest rate increases are likely to have an impact on markets for some time to come.
IPU : Benchmark-beating performance by Invesco Perpetual UK Smaller Companies