Growth Rating 2026: Aberforth Smaller Companies

Aberforth Smaller Companies’ (ASL) rigorous value approach has been a tailwind to Performance over the past five years, with the trust handsomely outperforming the benchmark, and even further outstripping the peer group average. This has led to the trust being awarded Kepler’s Growth rating for 2026. One factor contributing to the success has been the prevalence of M&A in the UK small-cap space, with strategic and trade buyers responding to the remarkable value on offer with takeovers that deliver immediate uplift. This year has seen the strongest start for M&A since 2021, with ASL benefitting on a number of occasions.

The high levels of M&A have not only supported returns but also been a key source of liquidity for the managers to rotate into the numerous attractively valued opportunities elsewhere. As such, portfolio turnover is above long-term averages, having hit the highest level for a decade in March 2026. New ideas have come from the managers exploiting the technical opportunity presented by stocks moving from the FTSE AIM Index to the main market (see Portfolio). The managers see over 70% average potential upside in their portfolio over the next couple of years through a combination of growth of profits, rerating, and dividends.

Another key demonstration of the breadth of value available is in the yield of their benchmark being above that of the FTSE All-Share Index. Prior to the present situation, the last time this occurred was briefly in 2008, and before that, it was late 2001. These periods were followed by sustained small-cap outperformance. This strong income backdrop has also helped revenue generation for the trust. It has enabled the payment of the 15th consecutive dividend increase, and fourth consecutive special dividend, which combined offer a historic yield of 3.9%.

Despite the compelling valuation opportunity, the trust continues to trade at a discount to NAV of c. 10%, compounding the value on offer in a deeply discounted UK small-cap space.

We believe there are several factors that make the investment case for ASL very compelling at this juncture. Whilst the valuation opportunity within UK small caps has been apparent for a while, this has become even more extreme recently, as highlighted by the yield on the trust’s index rising above the FTSE All-Share Index, as well as the continued high levels of M&A in the sector, with the number of deals in the first four months of 2026 only being beaten once in the past five calendar years. These factors are being driven by earnings, with smaller companies continuing to demonstrate resilience, with forecasts for 2026 remaining broadly stable, and even upgrades considered for 2027.

This all combines to create a compelling valuation picture, which we believe ASL is ideally suited to capture due to the value-disciplined process used by the managers, leading to an even more undervalued portfolio than the market. In addition, the trust itself remains at a Discount to NAV, a level that has remained surprisingly unreactive to changing outlooks over the past few years. We note that discount levels in both large-cap and mid-cap trusts have narrowed recently, with smaller companies lagging behind, which could make for an attractive entry point.

One further compelling element of ASL’s investment case is the Dividend. This has either been maintained or increased in every year of the trust’s existence, and with reserves double that of the past year’s dividend, which will provide considerable support for this to continue. The dividend has made up a significant portion of the trust’s historic total returns, showing its value as part of the overall investment case.