26th Feb 2019 12:26
LONDON (Alliance News) - Standard Life UK Smaller Cos Trust PLC on Tuesday reported a sharp drop in net asset value per share, underperforming its benchmark, as equity markets were "impacted by a number of macroeconomic factors".
In the six months to December 31, the UK small cap investment trust's NAV per share stood at 440.37 pence from 552.93p at June 30, representing a 20% decrease.
The trust's net assets increased 8.5% in the same period to GBP443.2 million from GBP408.3 million at June 30. The rise in net assets can be attributed to the trust's portfolio increasing by 38% following the merger with peer Dunedin Smaller Cos Investment Trust PLC in October.
The two trusts aligned portfolios so they could be "seamlessly" brought together under the merger.
The trust declared an interim dividend of 1.60 pence, a 6.7% increase on the 1.50p distributed last year.
Standard Life UK Smaller's NAV total return in the period was negative 19.5% compared to its benchmark, the Numis Smaller Cos plus AIM (excluding Investment Cos) Index, losing 15.5% in the same period.
The trust said the number look "bleak" but has seen an improvement in its NAV since the turn of the year clawing back some of the negative performance. At February 22, the trust's NAV was up 7.4%.
Portfolio manager Harry Nimmo said: "The portfolio performed very strongly in July and August before weakening significantly in the four months from September to the end of December. The final month of the year brought some stability at least to relative performance. The FTSE AIM All-Share Index held up well until October when it plummeted over 11% in the month, as some highly-rated momentum AIM leaders came under intense pressure, not helped by adverse trading statements. The situation was probably exacerbated by the publication of some influential "short sell" research. All five top performers in the portfolio in the third quarter were AIM listed while four out of five of the poorest performers in the portfolio were AIM listed in the fourth quarter."
Nimmo said the trust's worst performers were technology companies who had previously "exhibited strong price and business momentum". In particular, software and semiconductor related electronics stocks such as XP Power Ltd and First Derivatives PLC hurt the portfolio.
Fevertree Drinks PLC was also "very weak" following a stellar performance in the previous four years.
An overweight position in retailers was also negative, said Nimmo. The trust's holdings in the retail sector, such as JD Sports Fashion PLC and Joules Ltd, were pulled down by "extreme negativity" towards the sector.
Nimmo said the biggest portfolio positives were the trust's lack of exposure to oil & gas, mining and construction companies.
Looking ahead, Chair Allister Langlands said: "A focus of each outlook statement for the company for the last 3 years has been the implications on investing in smaller companies of the uncertainty surrounding Brexit. Although we are only just over a month away from the scheduled departure date, we still do not have much of the clarity that we have been hoping for since 2016. No doubt, this must be very frustrating for the managers of the companies in which the portfolio is invested.
"However, regardless of the outcome of the Brexit negotiations, it is important to remember that our investment process focuses on the individual company fundamentals, not on high level asset allocation. The board remains confident that while there may be bumps in the road, the process is unchanged and will continue to deliver returns for shareholders investing over the longer-term."
Shares in Standard Life UK Smaller Cos were up 0.9% Tuesday at 443.90 pence each.
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