abrdn UK Smaller Companies Growth Trust (AUSC) has released annual results for its financial year ending 30 June 2023.
- Over the 12 month period AUSC generated a negative NAV total return of -7.4% and a negative share price total return of -6.8%, both of which underperformed their reference index, the Numis Smaller Companies plus AIM (ex investment companies) Index, which generated a negative return of -2.8%.
- The board and investment managers retain confidence in the investment processes underpinning AUSC, and believe that the current environment is not conducive of the investment team’s style which focuses on quality, growth and momentum factors.
- AUSC traded on a 14.3% discount at its financial year end. Over the period the board repurchased 6.0% of the issued share capital, at an average discount of 12.8%. This was the largest year of buybacks since the feature was implemented.
- Underlying revenues increased substantially over the year, up 37%, and allowed the board to increase its dividend to 11.0p per share, a 35% increase on the year prior, while still contributing to AUSC’s revenue reserve.
- The managers have agreed to slightly lower their management fee, from 0.85% per annum on the first £175 million to 0.75% per annum. The other tiers remain unchanged. AUSC has a current NAV of £436m. Despite the reduced fee, AUSC’s OCF increased to 0.95% from 0.82% the year prior, due to the fall in the size of the trust.
Liz Arey, chair, commented:
“The economic challenges that existed during the year seem set to continue through the current financial year. Although starting to fall, inflation remains high and interest rates have increased since the year end, with further increases expected. This will likely prove again to be a difficult backdrop for investing in smaller UK companies.
“The Board considers the Investment Manager’s process to be tried and tested and it has yielded good results over the past two decades albeit interspersed with periods of underperformance at times of market turbulence such as this. Predicting when these challenging market conditions will change is very difficult and we must acknowledge the possibility that they may continue for longer than they have in the past two decades. We must accept that much of this period was characterised by unprecedented low interest rates and loose monetary conditions which is no longer the case.
“Notwithstanding this uncertainty, company quality and growth factors should ultimately prove themselves in such an environment, through resilience and earnings delivery. Share price valuations of companies with these characteristics remain very attractive in historic terms, and the Investment Manager believes that this presents a significant opportunity to investors. The Investment Manager has seen positive signs across the portfolio, with a strong reporting season and earnings upgrades for some of our core positions, even though significant economic challenges remain. If continued, over time this should lead to an improvement in investor sentiment to UK equities and the small and mid-cap sector in particular. In summary, the Board continues to believe that there are opportunities for your Company to achieve superior returns over the economic cycle.”