My LIC buying adventure has continued with a purchase of Aberforth Smaller Companies Trust (ASL.L), which is an London Stock Exchange Listed Investment Trust. Investment Trusts in the UK have a similar structure to Australian LIC’s.
Aberforth Smaller Companies is the largest trust in the UK Small Cap sector and was launched in December 1990. The trust follows a value investing philosophy focused on buying UK equities below their intrinsic value.
The aim of the company is to achieve a return greater than the Numis Smaller Companies Index (NSCI XIC) – excluding investment companies – over the long term.
Returns and Portfolio Composition
Since inception, the trust has returned a very pleasing 13.2% p.a. return and has a dividend yield of 2.3% p.a.
Currently, the Smaller Companies Trust consists of 87 companies listed on the LSE. The top 10 investments at Feb 28th 2018 are in the table below.
The management fee is a low 0.71% p.a.. The cherry on top is that there is no performance fee. Woohoo!
In my mind, the UK is far ahead of Australia in terms of investor (client) oriented management teams. Not that Australian management teams aren’t focused on creating shareholder wealth – because most certainly are – but they currently scoop off a large amount of cream for themselves in the process.
Even more pleasing is that management fees have been declining over the recent years.
Standard investment trust risks apply – the fund may decline in value, trade at a persistent discount to NAV or fail to outperform a similar passive small cap index fund. There is also the issue of currency fluctuations. As the Aussie dollar rises against the Pound, the value of my investment falls. To me, this is simply an opportunity to buy more should I wish. I’ll be a long term holder of ASL so currency fluctuations don’t matter too much.
Why I bought Aberforth Smaller Companies Trust
My investment portfolio is heavily focused on Australian stocks. I could have bought a diversified MSCI index ETF like Vanguards MSCI International Shares (VGS or VGAD) but when I factor in my Superannuation asset allocation – mostly international shares, with a large dose of North American companies and companies exposed to Asia – I decided to confine my focus to Europe.
I was introduced to Aberforth from diy investor (uk)’s blog and was impressed by the consistent returns and management’s strong shareholder alignment. The 1yr, 3yr, 5yr and since inception (est. 1990) returns are all very acceptable. The low management fee is attractive. Globally, small cap stocks tend to out-perform large caps and in the UK this theme is no different.
The trust traded at an approximate 11.6% discount to Net Asset Value and this seemed represent a good opportunity to take a position. I bought 125 shares at 1300 pence each – I love that I feel like a character out of a Dickens novel saying “pence”. I look forward to holding this Investment Trust for some time to come.
Steadily then, my basket of LIC’s and Investment Trusts is growing. Aberforth Smaller Companies Trust adds to my current holdings of Aussie LIC’s; Barrack Street Investments and Cadence Capital. These have helped improve diversification and offer a good dividend yield.
Do you own shares in ASL or another UK Investment Trust?