Abrdn UK Smaller Companies Growth (AUSC ) co-manager Abby Glennie was justified in switching up the portfolio in the second half of 2024 as her hunt for ‘momentum’ paid off.

In half-year results to the end of December, Glennie said turnover in the £356m portfolio had been ‘slightly higher than average’ last year. The recovery had been ‘more drawn out than the market expected for some holdings’, and faced with ‘sluggish momentum in some of these’, she exited.

Seven holdings were axed and replaced with seven new positions in a move that has paid off. The net asset value total return of the fund rose 1.9% in the six months and the shares were up 4.9% versus a 0.8% return from the Deutsche Numis Smaller Companies index (including AIM but excluding investment companies).

Glennie and co-manager Amanda Yeaman sold out of Big Technologies (BIG) after it missed out on a large contract and attracted litigation claims. An unexpected profit warning from YouGov (YOU) brought an end to the consumer data group’s time in the portfolio, and fears about uncertainty around challenging conditions saw the manager sell out of recruiter Robert Walters (RWA) and Liontrust Asset Management (LIO).

Technology solutions provider Midwich (MIDW), regulatory compliance group Marlowe (MRL) and Alpha Financial Markets Consulting (AFM) also left the portfolio.

They were replaced by stocks from a wide range of sectors, including estate agent Savills (SVS). Glennie noted the company was set to benefit from ‘improved price transparency’ and falling interest rates but said the ‘key catalyst will be a recovery in capital market transactions and leasing volumes in the global real estate market’.

Consumer review platform Trustpilot (TRST) was added as it is set to grow revenues ‘substantially’ over the coming years and has already ‘demonstrated its ability to deliver profitable growth’.

Sports nutrition brand Applied Nutrition (APN) was added on the back of its ‘strong global disruptive brand with a lean operating base with vertically integrated manufacturing in a market with structural growth dynamics’.

New contract wins ensured Avon Technologies (AVON) a place in the portfolio, with the maker of respiratory equipment for the army and fire service ‘executing well’ under a relatively new chief executive and improving financial performance.

‘Avon enjoys strong positions – as a sole source in many cases – on several multi-year contracts, providing a helpful underpinning and predictability to sales,’ said Glennie.

Also new to the portfolio over the half year were ME Group (MEG), a provider of self-service machines such as photobooths, publisher Bloomsbury (BMY) and construction materials group Breedon (BREE).

Despite the rush of changes, Glennie said the back end of 2024 ‘lacked momentum’ as the market awaited the outcome of the Autumn Budget, when tax breaks for investing in AIM stocks were reduced.

‘While not as bad as [the] worst fears, we still believe this reduces the attractiveness of the AIM market for investors, particularly for companies coming to this market in the future,’ said Glennie.

Her own portfolio of ‘quality’ stocks fared better, which she attributed to ‘earnings resilience’, with companies ‘achieving and exceeding expectations’.

There were plenty of profit warnings in the small-cap space and the portfolio wasn’t immune but ‘avoiding many of them was crucial as even shares of companies on lower ratings sharply underperformed on warnings’.

The beginning of 2025 has seen positive share price reactions from several portfolio companies but volatility persists, with Glennie sticking to the team’s ‘tried-and-tested investment process and backing quality companies that demonstrate earnings momentum and resilience’.

Factors including delays to interest rate cuts globally have made for a tough start to the year for smaller company funds. 

Shareholders in AUSC, which trades on a discount of just under 10%, are down 3.4% year to date, in line with its benchmark and ahead of the 5.8% average loss for the UK small-cap trusts tracked by Deutsche Numis.

However, over the five years to yesterday, during an adverse period for the trust’s growth investment style, shareholders are up just 1.2% while the benchmark has risen 27.6%.