abrdn Smaller Companies Income Trust results for the year end 31 2022 December do not make for happy reading for investors. NAV fell 33.2% while the share price dropped 33.7%. This compares to the Numis Smaller Companies ex Inv Trust Index which fell 17.9%. The discount closed the year at around 16% however has since narrowed with the company announcing a strategic review to consider its future, which will include consideration of a combination with another suitable investment trust, possibly coupled with a cash exit.
[We have maintained for some time that there are too many, too small UK smaller companies trusts so we believe this move is a good one. The obvious merger candidates from abrdn’s point of view might be abrdn UK Smaller Companies Growth but that is trading on a 15% discount, which probably rules it out, or an income fund such as Shires Income, which is trading on a more modest 3% discount. Shareholders might prefer a fund trading on a premium. Chelverton UK Dividend Trust has been performing well and still has a small cap bias, it is also currently sub-scale. This could solve both funds’ problems.]
Commenting on the outlook for the company, chair Dagmar Kent Kershaw noted;
“At the time of writing there is uncertainty about how long the bear market will last, notwithstanding the future of the Company, and every cycle that we have experienced has been different. This dynamic makes it harder to say with confidence how any recession or market recovery will develop, not least because there is also uncertainty on what any policy response from central banks will be.
“The outlook for both economies and businesses, globally, is tough and, whilst a high degree of earnings forecast reductions have already been seen, areas of risk remain. Smaller Companies indices have sold-off aggressively versus others, particularly within the UK, and so the opportunity for relative strength in the smaller end of the market remains attractive. Whilst market timing is difficult, smaller companies typically lead a market recovery.
“Looking to the coming year we believe that the Quality focus will prove relatively resilient in a recessionary environment. The Manager continues to adhere to a long-established investment process that selects high quality smaller companies with resilient earnings that lead to robust dividend payments. Given that we could be entering a recession, it would be unusual if this was dominated by cheaper value cyclical business where earnings are likely to be more challenged over the next year, although the Manager will continue to monitor the likelihood and depth and breadth of a recession as a factor in their decision making.”
ASCI : abrdn Smaller Companies confident of a roll over after poor year