The board of the Abrdn UK Smaller Companies Growth trust (AUSC ) has neogiated lower manager fees as performance has continued to suffer following the departure of star manager Harry Nimmo. 

Returns had already begun to spiral in Nimmo’s last year as lead manager. However, since his departure in December 2022, after 19 years at the helm, rising interest rates, sticky inflation and fears of a recession have continued to hit the £357m UK-focused growth-style trust.

Shareholders saw their returns fall 6.8% owing to the widening of the trust’s discount to 14.3%, the widest it has been since 2009, despite the board buying back 5.7m shares at a total cost of £25.8m.

In the 12 months to the end of June, AUSC’s total underlying return, or its net asset value (NAV), dropped 7.4% versus the Numis Smaller Companies index’s 2.8% fall, which includes AIM-listed stocks and excludes investment companies.

In light of this, the board chaired by Liz Airey took steps to determine ‘the root causes of the underperformance,’ concluding that a ‘confluence of external events,’ including the ‘weak UK economy, rising inflation and the sequential increases in interest rates we are experiencing as well as the political turbulence’ were the primary factors.

The board also reduced the management fee, which they said had been ‘insufficiently competititve’. From 1 July fees became 0.75%, down from 0.85% on the first £175m, previously £250m, and 0.65% on assets between that amount and £550m. 

In their report managers Abby Glennie (pictured) and Amanda Yeaman said the UK smaller companies sector was out of favour with investors, with the trust’s ‘disappointing’ performance driven by its growth focus while value names have tended to do better.

However, the pair struck a bullish tone, anticipating a sharp rebound from the portfolio when markets do turn, given the strength of company fundamentals, which have not been reflected in share prices.

‘In a period of more positivity in markets, small and mid-cap stocks tend to lead, and the outlook for the asset class should be attractive. Small and mid-caps in the UK have lagged large companies in the market moves since the start of 2022,’ the pair said.

The worst performers include music product group Focusrite (TUNE), which fell 57% as a normalisation of Covid spending impacted demand for the company’s products, and publishing group Future (FUTR) slumped 60% as it saw lower advertising spending.

Promotional merchandise marketer 4imprint (FOUR) was the top performer, with its shares surging 106% after it reported results that exceeded expectations several times, driving strong dividend growth and even a special payout.

Over five years, the shares have fallen 14.3% versus the index’s 2.7% loss, while 10-year returns of 63.3% outperform the benchmark by 11%.

Numis analyst Gavin Trodd noted the period marked a ‘challenging’ start for Glenny, who was integrated into the management team in 2016, adding it was ‘interesting’ that she believes valuations are attractive and that typically the market recovery for small and mid-caps comes when the outlook remains bleak.

Nimmo leaves a year after the peak

Source: Morningstar