Invesco Perpetual UK Smaller Companies Investment Trust announced annual results for the year ended 31 January 2023. The company returned 17.5% in NAV terms, underperforming its benchmark index, the Numis Smaller Companies + AIM (excluding investment companies) Index, which returned –12.4%. The company’s share price total return for the year was 17.0%. The performance stands in stark contrast to the previous year’s performance with NAV and share growth up 19% and 22% respectively. Shares trade at a current discount of around 12%.
Chairman Jane Lewis noted that despite the poor one-year returns, they maintain a high level of conviction that UK smaller companies will continue to provide investment opportunities with which to deliver long-term total returns for shareholders, regardless of the investment conditions which prevail.
Commenting on the performance, management noted that underweights to oil and gas were a large drag on the portfolio. Regarding the outlook, they continued:
“The last three years have been unusually volatile, however we can see a more stable picture emerging. Energy prices have declined substantially from their peak, with oil and gas prices now below the level they were a year ago. Whilst there is always a lag to this feeding through to the cost of living, it seems likely that inflation will return towards its historical average of 4-5% as we move through the middle of the year. Tight labour markets are a blessing for job hunters, but wage demands could potentially cause inflation to be quite stubborn around this level. We would expect the Bank of England to halt interest rate increases this year, and this should be a positive for markets, but it seems less likely that we will see cuts to base rates in the short term.
“The UK smaller companies sector is very cheap when compared to both its own history and other global markets. A more stable political situation in the UK, a peaking of the interest rate cycle and the prospect of economic recovery could all provide the catalyst for this discount to narrow. We continue to see interesting opportunities across a range of sectors and will continue to take advantage of these as they arise. So, whether we see a recession or not this year, we believe that the UK smaller companies sector continues to offer a wealth of opportunity for investors.”
IPU : Down year for Invesco Perpetual UK Smaller Companies Investment Trust