Bestinvest says
This fund benefits from a stable and respected investment team who specialise in smaller companies. Their value biased investment philosophy has served them well over a long period and typically provides a degree of resilience in falling markets. More recently the fund has lagged its peers as investors have focused on growth companies on higher valuations. This open-ended fund is similar to the London-listed closed-ended Aberforth Smaller Companies Trust (LSE:ASL) run by the same manager. Aberforth's assets under management are relatively high for a small cap manager which can act as a drag on returns.
The trust has no specific tracking error targets or formalised risk controls, however a diversified portfolio is maintained, sector bets are monitored and companies are subject to intensive internal research. Aberforth's attribution analysis of historical returns indicates that performance is driven 70% by stock selection and 30% sector allocation.
The investment style is associated with unfashionable companies, misunderstood franchises, good companies that are undervalued on a cash flow basis, and previously poorly run companies where there is evidence of a turnaround. The team use a combination of valuation methods: DCF and EV / EBITDA as a means of relative sector values and P/E as more of an absolute measure, they are unlikely to pay more than 15x earnings for a company.