Aberdeen UK Smaller Companies Growth (AUSC), once a leading trust in its sector, has sought out a merger with rival JPMorgan UK Small Cap Growth and Income (JUGI) after a five-year downturn that shrank the company and made it less attractive to investors.
Liz Airey, chair of AUSC, said her board had chosen to combine with the JPMorgan trust after a “competitive private review process” having become conscious of the challenge facing the company after buying back more than half its shares since 2021.
“Whilst this has been in the best interests of shareholders, it has significantly reduced liquidity in the company’s shares and the board is concerned about the impact that ongoing share buybacks are likely to continue to have on the size and scale of the company, the liquidity in the company’s shares and the company’s ability to appeal to investors and grow over time,” she said.
Airey said the board had negotiated two fee cuts with Aberdeen in recent years but the continued reduction in AUSC’s size meant the improvement in ongoing charges was hard to sustain “further reducing the company’s attractiveness when compared to its peers”.
In addition, investment performance under Abby Glennie and Amanda Yeaman, who took on the trust after former manager Harry Nimmo retired in December 2022, had been “challenging”. Despite the board’s robust engagement with the managers during a period when UK small-caps have been out of favour, “recent performance remains below both the benchmark and a number of similar peers”, Airey said.
By contrast, under JP Morgan fund managers Georgina Brittain and Katen Patel, JUGI had a strong track record having delivered over 46% and 155% in underlying investment returns over three and 10 years, beating their benchmark return of 36% and 69.6%, although it had underperformed over five years. It also offers a 4% dividend policy, higher than AUSC’s 2.6% yield, which would be unchanged by the merger.
AUSC shareholders will be given a 35% cash exit at a 2% discount before the rest of the company’s assets are rolled into JUGI and the company wound down.
Airey said: “I am delighted that we can offer our shareholders the opportunity to rollover their holdings into an investment trust with exceptional long-term performance within the UK Smaller Companies sector. Those who elect to do this will also benefit from holding shares in a larger, and so more cost efficient, company which should offer better trading liquidity.”
Katrina Hart, chair of JUGI, said: “This partnership will create an enlarged company that delivers meaningful benefits for both sets of shareholders, including improved market liquidity and a reduction in our ongoing costs ratio. JUGI makes good use of the investment trust structure through gearing and its enhanced dividend, while the long-term performance record of its experienced management team is compelling.”
Our view
Richard Williams, senior analyst at QuotedData, said: “This deal draws a line under the problems that have been steadily eroding AUSC’s viability as a standalone vehicle. Over the past five years, the trust has more than halved in size through share buybacks intended to control its discount, leaving it with reduced liquidity and an increasingly burdensome cost base – a vicious circle that was becoming difficult to break. For JUGI, the deal is further evidence of the board’s determination to build scale, having also absorbed JPMorgan Mid Cap in 2024. For shareholders who still want UK smaller-company exposure, the rollover offers a relatively clean solution and brings with it JUGI’s 4%-of-NAV dividend policy. It is good to see a cash exit opportunity, although subject to the 35% cap. The bigger story, perhaps, is JUGI’s emergence as a consolidator in the sector. If greater scale translates into better liquidity and a more resilient rating, it may not be its last deal.”
