Last year was very much one of two halves for the Standard Life UK Smaller Companies Trust (SLS). Managed by highly-rated stock picker Harry Nimmo, the investment trust aims to put money to work with lower risk, UK-quoted smaller companies, ones operating in growing markets where business momentum is ‘positive, predictable and improving’.
Last year to 30 June the investment trust endured its worst first half since December 2008, but then staged a stunning recovery by enjoying its strongest second half since 2003.
Even so, overall net asset value (NAV) total return actually lost investor's money. It recorded a 1.1% decline for the 12 months, although this still beat its benchmark Numis Smaller Companies plus AIM (ex investment companies) index's 7.2% slump, showing how tough life has been in the small cap environment.
The trust also recommended its largest annual dividend increase in three years, by 10% to 7.70p.
Yet this performance needs to be placed in the context of manager Nimmo's patient approach. He aims to maximise returns by running winners over the long term. In that regard, the trust's five year performance is perhaps a better yardstick.
The trust has delivered a 74.3% and 74.5% total return in share price and NAV respectively, versus 55.6% for the benchmark.
Under Nimmo’s stewardship since 2003 the trust has delivered a share price total return of 1,200%, versus 402% of the benchmark.
Small cap stock picker Harry Nimmo
NAVIGATING A TESTING YEAR
Despite being pegged back by a very difficult final quarter of 2018, the trust’s NAV total return for the year proved superior to the weighted average return of UK smaller companies-focused investment trusts, news which helped the shares 2p higher to 464p this morning.
NAV actually rose over 13% in March and April 2019, a spectacular rebound in performance driven by a large number of holdings beating expectations in the March/April reporting season.
Performance was also boosted by the US Federal Reserve’s stepping back from the October 2018 hawkish view on interest rates, which enabled UK markets to concentrate more on the bottom up micro-picture.
LEADERS OF THE PACK
Last year’s five leading performers included block paving play Marshalls (MSLH), Gamma Communications (GAMA:AIM), a technology-based supplier of communications solutions to enterprise customers, as well as data services company Kainos (KNOS), promotional products play 4imprint (FOUR) and language translation specialist RWS (RWS:AIM).
‘Gratifyingly, new additions Future (FUTR), GlobalData (DATA:AIM) and Games Workshop (GAW) performed well’, enthused Nimmo. ‘The poorest performer was Accesso Technology (ACSO:AIM), the visitor attractions software company, which ran out of growth. The holding has been sold since the year end.’
In terms of the outlook, Nimmo said ‘it is pleasing that the new issues market in the UK is still producing strong companies like AJ Bell (AJB) and Trainline (TRN). Our investment process still has relevance many years after its introduction with some most useful immediate strong performers in the shape of Future and Games Workshop.
‘At the risk of repeating myself, the two over-arching “macro” issues going forward remain Brexit and the threat of trade wars. Bad outcomes in both cases could cause mayhem far beyond the realm of UK smaller companies. Investors thus should continue to favour better quality, growing companies with strong business momentum.
‘These great companies are well suited to ride out difficult economic conditions if they occur. Given that these two macro-uncertainties are likely to persist for some time I am optimistic that our process will continue to deliver out-performance in potentially troubled times.’
DISCLAIMER: AJ Bell is the owner and publisher of Shares. The author owns shares in AJ Bell.