Global Smaller Companies Trust (GSCT ) fund manager Peter Ewins is set to retire after more than 26 years working on the listed fund, 18 of which he was lead manager.

The Columbia Threadneedle manager will step down in June 2024. Nish Patel, a director of equities at the firm, will become co-manager at the beginning of 2024 and take on the lead manager position in May.

Patel has been involved in the £1.4bn trust’s management since 2008. In the last 18 months he has helped with stock selection in the North American and UK portfolios and the selection and monitoring investments in Asian, Latin American and Japanese markets.

The incoming lead manager has also recently been involved in marketing the trust as the board seeks to reduce the double-digit discount at which its shares trade by targeting a ‘wider audience of institutional and retail investors’.

Interim chair of the company, Graham Oldroyd, said Ewins (pictured below) had ‘made an important contribution’ to the trust’s ‘strong record of delivering long-term growth in capital and income’.

Over 10 years the company’s underlying assets have grown 116%, below its Association of Investment Company peer group average of 139%. Shareholders recieved 87% during the decade, while the peer group delivered 125%. 

Half-year performance

In the six months to the end of October the trust saw its net asset value drop 6.3% while its benchmark, a composite consisting of 20% Numis UK Smaller Companies excluding investment companies and 80% MSCI All-Country World ex-UK Small Cap index, lost 3.6%.

The share price fell more as the discount widened to 15%, resulting in shareholders losing 8.6% in the period.

However, strong income performance with revenue returns per share up 23.1% allowed the company to increase its interim dividend by 7.9% to 0.68p per share. The shares yield 1.6% which high compared to non-yielding rivals such as Edinburgh Worldwide (EWI ), Smithson (SSON ) and Herald (HRI ).  

Ewin said the ‘most resilient regional performance’ came from Japan, which makes up 9.6% of the portfolio. The manager shifted his strategy in the region and sold Baillie Gifford Japanese Smaller Companies fund and Abrdn Japanese Smaller Companies Sustainable Equity fund after continued underperformance.

In their place he purchased 30 individual Japanese small company equities, lowering the cost as the trust will no longer have to pay management fees. This portfolio will be run by a team of Columbia Threadneedle managers focused on Japanese equities, who will report to Ewin and then Patel.

The trust continues to hold Eastspring Investments Japan Smaller Companies, which makes up over half of the Japanese exposure.

UK and Europe, which make up 24.1% and 13.5% of the overall assets, did the biggest damage to the portfolio during the period, dropping 12.6% and 12.4% respectively.

In the UK the manager suffered from overall poor market sentiment and stock selection. This includes CAB Payments, whose flotation in July the manager backed, only to see its shares plummet shortly after a profit warning ‘flagging an effective ceasing of business in two markets’.

A holding in buy-to-let mortgage lender OSB also hindered performance as its shares fell 39.6% in the period.

It was a similar story in the European portfolio, which was ‘modestly trimmed back’ in the period, as companies struggled in the rising rate environment, with several holdings being hit by weaker consumer demand including Remy Cointreau and Vidrala.

The US portfolio, which is the largest, making up 41.9% of assets, fell 3%, underperforming the MSCI North American Small Cap index’s 1.9% due to holdings in the financial and basic material sectors.

PRA Group, a purchaser and servicer of consumer loans tumbled 66.1% in the period as the market became cautious around credit card delinquencies while weaker commodity pricing led to falls in Wheaton Precious Metals and Lundin Mining.

However, Ewin’s healthcare holdings, including Molina Healthcare and Syneos Health, performed well and the company benefited from not holding individual biotechnology stocks which were under pressure.

Part of GSCT’s underperformance was also due to the widening of discounts in the investment trust sector where it holds Scottish Oriental Smaller Companies (SST ) and Utilico Emerging Markets (UEM ).

‘As we move into the second half of the financial year, we are seeing certain companies, particularly those exposed to discretionary areas of consumer and corporate spending, reporting weaker trading, as the impact of previous monetary policy tightening feeds through,’ said Ewins. ‘However, since the end of October equity markets and smaller company shares have rallied, helped by encouraging inflation data.’