Small Cap Bottom Fishing

Closed-end funds and OEICs
hiriskpaul
2 Lemon pips
Posts: 108
Joined: November 4th, 2016, 1:04 pm

Small Cap Bottom Fishing

Postby hiriskpaul » December 28th, 2016, 1:07 pm

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.

richfool
Posts: 27
Joined: November 19th, 2016, 2:02 pm

Re: Small Cap Bottom Fishing

Postby richfool » December 28th, 2016, 1:37 pm

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.

hiriskpaul
2 Lemon pips
Posts: 108
Joined: November 4th, 2016, 1:04 pm

Re: Small Cap Bottom Fishing

Postby hiriskpaul » December 28th, 2016, 1:53 pm

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.

richfool
Posts: 27
Joined: November 19th, 2016, 2:02 pm

Re: Small Cap Bottom Fishing

Postby richfool » December 29th, 2016, 5:19 pm

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.

hiriskpaul
2 Lemon pips
Posts: 108
Joined: November 4th, 2016, 1:04 pm

Re: Small Cap Bottom Fishing

Postby hiriskpaul » December 30th, 2016, 9:43 pm

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.

Plutus
Posts: 35
Joined: January 3rd, 2017, 11:24 am

Re: Small Cap Bottom Fishing

Postby Plutus » January 8th, 2017, 1:15 pm

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.

peka
Posts: 5
Joined: November 26th, 2016, 9:02 am

Re: Small Cap Bottom Fishing

Postby peka » January 10th, 2017, 9:24 am

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.

argoal
Posts: 10
Joined: November 4th, 2016, 10:51 am

Re: Small Cap Bottom Fishing

Postby argoal » January 10th, 2017, 10:20 am

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.

Plutus
Posts: 35
Joined: January 3rd, 2017, 11:24 am

Re: Small Cap Bottom Fishing

Postby Plutus » January 17th, 2017, 6:52 pm

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?

77ss
2 Lemon pips
Posts: 114
Joined: November 4th, 2016, 10:42 am

Re: Small Cap Bottom Fishing

Postby 77ss » January 17th, 2017, 9:05 pm

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%.

Plutus
Posts: 35
Joined: January 3rd, 2017, 11:24 am

Re: Small Cap Bottom Fishing

Postby Plutus » January 17th, 2017, 9:55 pm

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.

hiriskpaul
2 Lemon pips
Posts: 108
Joined: November 4th, 2016, 1:04 pm

Re: Small Cap Bottom Fishing

Postby hiriskpaul » January 17th, 2017, 11:07 pm

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.

1nv35t
Lemon Slice
Posts: 257
Joined: November 4th, 2016, 8:18 pm

Re: Small Cap Bottom Fishing

Postby 1nv35t » January 18th, 2017, 12:56 am

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.

What I see there is that Mercantile and JP Morgan Mid Cap both have discounts appropriately reflective of their gearing, whilst Aberdeen Smaller Co's is more imbalanced - perhaps their gearing is more leveraged than the others?

1nv35t
Lemon Slice
Posts: 257
Joined: November 4th, 2016, 8:18 pm

Re: Small Cap Bottom Fishing

Postby 1nv35t » January 18th, 2017, 1:21 am

hiriskpaul wrote: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.

One you might be interested in Paul. Zvi Bodie likes 10/90 (90% in safe/TIPS) and invests the 10% in LEAPS (long dated Traded Options) that he approximates as being 10x stock like.

A alternative to that is to short/sell volatility and XIV tends to broadly average around the equivalent of a 5x long stock (more often VIX futures are in contango and reward (short) sellers, cost buyers (long)). When volatility spikes, so XIV loses, when volatility is low, XIV does well + contango benefit.

Compare 20/80 XIV/Bonds with 100% stock (best to set the chart to log scale) and 20/80 is clearly more volatile. Similar broad reward with more volatility and its like seeing swings between being Premium and Discount to NAV. More recently at around a 10% discount for 20/80 XIV/BND, at other times that swings the other way around. The tricky part is timing :)

A negative is that XIV isn't UK reporting registered, so all gains are considered by HMRC to be 'income' (also losses can't be CGT offset). You can emulate XIV however using futures (short/sell, VIX, hold .... and roll http://www.cboe.com/micro/vix/vixfuturesprices.aspx).

richfool
Posts: 27
Joined: November 19th, 2016, 2:02 pm

Re: Small Cap Bottom Fishing

Postby richfool » January 18th, 2017, 12:26 pm

1nv35t wrote:What I see there is that Mercantile and JP Morgan Mid Cap both have discounts appropriately reflective of their gearing, whilst Aberdeen Smaller Co's is more imbalanced - perhaps their gearing is more leveraged than the others?

1nv35t, 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!


Return to “Investment and Unit Trusts”

Who is online

Users browsing this forum: No registered users and 1 guest