Aberforth will launch a new investment trust on 1st July that will absorb the assets held in Aberforth Split Level Income when it winds down later this year.
If approved by shareholders, many of its holdings will be transferred over to the newly created Aberforth Geared Value & Income trust on 28th June.
It will continue to invest in UK smaller companies, with the primary goal of delivering an attractive dividend yield and benefitting from a potential recovery in UK small caps.
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The existing trust has a similar objective of providing high levels of income by investing in UK smaller companies. Its yield of 7.9% is one of the highest in the IT UK Smaller Companies sector, but returns have not been so strong.
The six-manager trust is headed up by Euan Macdonald and Peter Shaw is up 10.2% since launching in 2017, falling significantly behind the average 37.2% return made by its peer group.
While performance did improve over the past three years (climbing 15.4% while its peers fell 5.9%), the board is going ahead with its proposed wind down process.
Thomas McMahon, head of investment companies research at Kepler, said: “In our view the last three years show how powerful the combination of high gearing and a value strategy can be in favourable markets, and arguably there is the potential for further impressive returns in the coming years.
“There is of course the unfortunate likelihood of a recession in the short term. However, we think with valuations so low, it could be that most of the bad news is in the price.”
