Standard Life (LON:SL) Uk Smaller Co Trust (LON:SLS) has been managed by Harry Nimmo since 2003. He aims to generate long-term capital growth from a diversified portfolio of smaller-cap UK equites. While a little more cautious on the near-term outlook for small caps given, their strong start to the year and Brexit-related uncertainty, Nimmo remains very positive on the longer-term outlook. He suggests that the portfolio’s companies have potential earnings growth of 10-15% pa, which bodes well for SLS’s dividend growth. The trust has a very strong performance track record; it has outperformed its Numis Smaller Companies ex-Investment Companies Index benchmark over one, three, five and 10 years. Over the last 10 years, SLS’s dividend has compounded at an annual rate of 23.5%; its current yield is 1.5%.
Investment strategy: Six principles for investing
Nimmo has six principles for successful investing in small-cap equities: look for sustainable growth; go for quality; run your winners; concentrate your efforts; management longevity; and value is not everything. He uses Standard Life Investment’s proprietary stock selection Matrix to screen the investible universe, seeking high-quality companies with the potential to become the larger companies of tomorrow. Potential investee companies then undergo thorough fundamental analysis. As a result of the bottom-up stock selection process, SLS’s sector exposures may vary significantly from the benchmark. Gearing is permitted in a range of 5% cash to 25% debt as a percentage of net assets and is made up of convertible unsecured loan stock (CULS), which will expire in March 2018; at end-June 2017, net gearing was 2.5%.
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