Not even the most gifted of stockpickers could have escaped unharmed in last October’s market sell-off. In the case of the Standard Life UK Smaller Companies Trust, the tumult caused by sudden fears of a wave of American rate rises meant that it suffered its worst first six-month period since the financial crisis a decade earlier. Over the half-year to December, the net value of the trust’s assets slid by 19.5 per cent.
Yet it’s testament to the resilience of its portfolio that over the following six months it turned in its best second half since Harry Nimmo, 62, the fund manager, took charge in 2003, returning 22.9 per cent and in the end outperforming its benchmark over the full year by some margin.
The trust was launched in 1993 with the aim of generating growth for shareholders over the long term by actively managing a portfolio of holdings in smaller and mid-sized companies. Part of its mantra is that smaller companies have outperformed their large-cap peers over the long term and it targets those that it perceives as offering lower risk but generating higher returns. Its average holding period is five years.
Last year the trust’s net assets swelled by £147.4 million after it was merged with Dunedin, a similar smaller companies trust that was run by Aberdeen Asset Management before its combination with Standard Life. Its benchmark is the Numis Smaller Companies plus Aim index, excluding investment companies. While the net value of the trust fell by 1.1 per cent in the 12 months to the end of June, its reference index dropped by 7.2 per cent during the same period.
It is defensive, perhaps, but with a total of about 50 holdings its portfolio is diverse and includes some interesting bets. Its biggest position is in RWS, the patent translation business, followed by Gamma Communications, a cloud-based company whose services include landline phones, mobiles and broadband. Shares in both companies have done well for investors in the past five years.
During the year Mr Nimmo also bought shares in stock market listings, including AJ Bell, the stockbroker, and Trainline, the ticketing website and app, both of which have been strong performers.
The trust’s returns for the long term look robust. It has outperformed its benchmark not merely for one year but also over three, five and ten-year periods. This augurs well for what could lie ahead. Investors should expect Brexit to increase the pressure on any investment vehicle directly exposed to UK companies, which at the very least will find trading in the next few years tougher if, as is forecast, the economy goes into slowdown after Britain’s departure from the European Union. In its favour, there are plenty of companies in the portfolio with healthy international earnings: in fact, 52 per cent of the collective corporate profits are derived from outside the UK, against 47 per cent for the trust’s reference index.
This trust is only for long-term investors who might be content, for example, to wait for several years until the post-Brexit fallout settles. Moreover, with its yield of about 1.6 per cent, it is not for those seeking income through dividends. The shares, which closed up by 1½p, or 0.3 per cent, at 484p yesterday, trade at a discount to the net value of its assets of about 7 per cent, which is more marked than many of their peers in the sector and would make them cheap if the gap narrowed over time.
They have risen by just over 71 per cent during the past five years and are a solid long-term hold.
ADVICE Hold
WHY Strong defensive portfolio well positioned to endure the slowdown that is likely to come after Brexit
Paypoint
The yellow and blue “P” logo of the Paypoint payments machine may be a familiar sight to those who use their local convenience store as a place to pay household bills.
The company was established in 1996 to provide a means for consumers to load gas and electricity payments on to prepay energy meters using “keys” charged at their local shop. Paypoint’s distinctive terminals are now also used for paying council tax, rent, the television licence fee or to top up mobile phone credits. Its services are available in 29,000 retailers.
The group operates cash machines and a send-or-collect parcel service through convenience shops and has a growing payments division in Romania. A member of the FTSE 250, Paypoint is valued by the stock market at just under £630 million and in the year to the end of March made a pre-tax profit of £54.7 million.
Its traditional business is in decline as consumers increasingly pay their bills online. It is tackling this through Paypoint One, a new terminal that performs every function that a retailer might need, from stock-checking and management to acting as the till. Retailers pay a weekly fee to use the terminal this way and about 14,000 do so, with a target to get that to 15,800 by the end of the year. The group also has taken steps to develop the parcels operation, striking partnerships with companies including Amazon, Ebay and DHL.
There have been setbacks, including losing a big contract with British Gas, but Paypoint seems to be trading its way through them, agreeing new deals with the likes of Anglian Water and Monzo, the digital bank.
The company has become highly popular with shareholders as it regularly returns much of the cash it generates through special dividends, the high expectations of which give the company’s shares a yield of a generous 9.2 per cent.
The shares, up 4p, or 0.4 per cent, at 922p yesterday, have weakened recently, largely because of worries about rising costs and the impact on revenues of lost contracts. The worries feel unfounded and, trading at 13.5 times forecast earnings, the stock looks enticing.
ADVICE Buy
WHY Growth of higher-margin activities will offset declines
