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Scottish Oriental Smaller Companies (SST)
21/10/2021
Results analysis from Kepler Trust Intelligence
Scottish Oriental Smaller Companies (SST) has reported strong absolute returns for the financial year ending 31/08/2021. The trust returned 28.4% in NAV total returns over the period. It does not have a formal benchmark, but this compares to total returns of 14.7% for the MSCI AC Asia ex Japan Index and 37.8% for the MSCI AC Asia ex Japan Small Cap Index.
SST has long had a significant position in Indian companies based on the managers' view of company-level fundamentals rather than a call on the market. In FY 2021 this benefitted the trust as the Indian market performed strongly and many of the trust's top performers are listed in that country.
Kepler View
Scottish Oriental Smaller Companies (SST) invests in market-leading businesses in the Asia Pacific region which have a market cap of below $5bn at the time of investment. These companies are chosen for their low levels of debt, strong management teams, and ability to compound earnings consistently over the long run at high returns on invested capital.
In FY 2020 the board and manager implemented a number of changes intended to improve performance. This included naming Martin Lau as co-manager with Vinay Agarwal, and the addition of the first structural gearing for many years. The market-capitalisation limit was also increased from $3bn to $5bn and the mandate broadened to include Australasia and Japan. The first indications are the changes have been helpful, judging by the strong results reported for the latest financial year.
The portfolio at the end of the financial year displays attractive characteristics which could be promising for future returns. While the valuation of the portfolio has risen somewhat on last year, the team forecast earnings growth of 21.5% a year over the next two years on their portfolio companies. We note SST performed very well after the past two global crises as the quality style outperformed.
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