The Lemon Fool

Quite a few small cap focussed ITs have fallen out of favour and are now sitting on tempting discounts. These are the ones I have filtered out from the AIC web site:



Initial filtering based on size of discount, but have eliminated anything with outrageous charges and/or very low AUM. I will be delving deeper, but would welcome any comments on the above, or anything I may have missed. I already have a sizeable investment in VCTs, so for that reason would prefer not to hold anything with a significant amount in unlisted securities.

A couple of others you might want to think about, in descending order:

Aberdeen Smaller Co's Inc: Disc: 20.4% Gearing: 112% TER: 1.58% Yield: 3.35%

Mercantile: Disc: 11.5% Gearing: 112% TER: 0.50% YIeld: 2.52%

JP Morgan Mid Cap: Disc: 6.4% Gearing: 106% TER: 0.95% Yield: 2.73%

ASCI (the first above) is attractive to me because of it's relatively higher yield, though noted it has a higher TER.

Noted some are mid caps and some small caps focused.

richfool wrote:A couple of others you might want to think about, in descending order:

Aberdeen Smaller Co's Inc: Disc: 20.4% Gearing: 112% TER: 1.58% Yield: 3.35%

Mercantile: Disc: 11.5% Gearing: 112% TER: 0.50% YIeld: 2.52%

JP Morgan Mid Cap: Disc: 6.4% Gearing: 106% TER: 0.95% Yield: 2.73%

ASCI (the first above) is attractive to me because of it's relatively higher yield, though noted it has a higher TER.

Noted some are mid caps and some small caps focused.

Thanks, Aberdeen looks really interesting. The downside is that TER and I already have direct sizable investments in securities in their fixed income portfolio. Only around 11% of the ITs assets though and I am very comfortable with their FI choices.

Discounts on the other ITs look a bit small compared with others I have identified, but I will take a look.

I appreciate your OP referred to small caps, but may I also draw your attention to Standard Life Equity Income trust (SLET), if you are looking at discounts and which according to citywire (link below) holds:
FTSE 100 stocks - 39%
FTSE 250 stocks - 38%
FTSE small caps - 17%

SLET is at a discount of 7.9%.
Gearing: 113%
TER: 0.94%
Yield 3.93%

I believe SLET is currently out of favour because of its holdings of mid cap and smaller company stocks. That could be of interest to you.

Some fools were less keen on the smaller size of Aberdeen Smaller companies Income (and the TER), when I last posted about it.

I hold SLET, Mercantile, and Aberdeen Smaller Companies income of those mentioned. My focus tends to be income and diversification.

SLET has too much in FTSE 100 stocks for what I want here. Discount is not big enough either.

I have discarded Artemis Alpha as well because it has too much invested in unlisted stocks.

hiriskpaul wrote:SLET has too much in FTSE 100 stocks for what I want here. Discount is not big enough either.

I have discarded Artemis Alpha as well because it has too much invested in unlisted stocks.

Hi, I would be interested how you would make a final decision between e.g. Aberforth and Henderson smaller companies.

Aberforth has lower gearing but higher charges.

Thanks. I have started a thread on this sub-forum re: selection criteria if it's more relevant to post there.

One issue that has not been mentioned so far is bid-offer spreads, which are relatively high at present for many ITs investing in smaller companies, particularly the ones with the larger discounts to Net Asset Value. For example, Aberdeen Smaller Companies Income Trust is on a big discount today of 23% (according to the Trustnet web site), but its bid and offer prices at the time of writing are 198.5 and 208.0 pence respectively (according to the iii web site), which means its bid-offer spread at present is a massive 4.8%. So if you bought and then sold that IT today, you would suffer an immediate loss of 5.3% (= 4.8% plus 0.5% stamp duty) even if one ignores the broker's fee.

I just got quoted 204.76 for ASCI with the offer at 208.0 so the actual spread is not as wide as it appears, at least for a small purchase.

Both Aberforth and Henderson appear to have major holdings in ftse 250 companies, is it easier to buy an ETF such as vmid?

What proportion of their constituents are 'small' companies?

Plutus wrote:Both Aberforth and Henderson appear to have major holdings in ftse 250 companies, is it easier to buy an ETF such as vmid?

What proportion of their constituents are 'small' companies?

I don't know about Aberforth, but it is true that Henderson has some FT250 holdings.

Presumably for reasons that seem good and sufficient.

I wonder if it matters. The stated benchmark is the Numis Smaller Companies Index (excluding investment companies)

If I understand it correctly, this covers the bottom 10% of UK listed companies by market capitalisation. If tossing in a few larger companies helps meet the benchmark, so be it.

I have held for just over 2 years now, and so far so good. XIRR of nearly 15%.

77ss wrote:
I don't know about Aberforth, but it is true that Henderson has some FT250 holdings.

Presumably for reasons that seem good and sufficient.

I wonder if it matters. The stated benchmark is the Numis Smaller Companies Index (excluding investment companies)

If I understand it correctly, this covers the bottom 10% of UK listed companies by market capitalisation. If tossing in a few larger companies helps meet the benchmark, so be it.

I have held for just over 2 years now, and so far so good. XIRR of nearly 15%.

Ok thanks for the info. I spotted several company names that were household names whereas I was expecting obscure very small companies!

Aberforth portfolio http://www.aberforth.co.uk/investment-t ... -holdings/

Vesuvius, first group, de la rue etc.

Plutus wrote:Ok thanks for the info. I spotted several company names that were household names whereas I was expecting obscure very small companies!

You need to go to VCTs if you want obscure.

I already hold VMID by the way, but that does not trade at a 15-20% discount to NAV, which is my main interest here. Also, apart from Schroder and Henderson, these trusts tend to fish at the smaller end of the FTSE 250.

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Poster ID and/or quote removed on request of poster. Raptor.

******, I don't think there is any relationship between discounts and gearing. My understanding is that the discount (or premium) is more usually associated with sentiment for the particular IT (and its holdings).

In the case of ASCI I would think it more likely to be because of things like:
>it (still) holds some Fixed Interest holdings (c19%), whereas the other two IT's invest only in equities.
>ASCI is a smaller trust and some investors may shy away from smaller trusts.
>(Another possibility that occurs to me is perhaps the fact that as it holds higher yielding equities in its portfolio, it maybe construed that they are riskier holdings). Though not so sure about the last one!