Investors holding shares in Aberdeen Asian Smaller Companies Investment Trust (LSE: AAS) have enjoyed a good run over the last couple of years. The shares are up almost 50% since the autumn of 2015.
Even now, with the share price around 1044p, the trust trades at a discount to diluted net asset value (NAV) running around 11% or so, suggesting that good value could be on offer to those taking the plunge. Trusts, and other types of investment fund, can trade either below, over, or at their net asset values, depending on their popularity with investors, which in turn often depends on what investors think about the outlook.
Rising net asset value
Of course, such value could prove to be elusive if the underlying investments held by the trust go on to perform badly, and that could happen if macroeconomic conditions deteriorate. Maybe that’s what investors are worried about. But there’s little sign of pessimism in the outlook within today’s annual financial report.
It reveals that the diluted NAV added 15.4% during 2017, indicating that the trust’s investee companies performed well. The great thing about closed-ended investment trusts is that they trade as companies on the stock market in their own right. That means we can buy and sell their shares with ease, without all the faffing about necessary to participate in open-ended funds. So, if we see good value, we can pounce quickly.
Renewed interest in smaller companies
UK-based investors holding AAS benefited because the weakness in sterling following the UK’s referendum to leave the European Union boosted investment returns. But the directors also think recent good share price performance has been driven by “investors’ renewed interest in smaller companies”. Indeed, many firms perceived as being cyclical saw a big dip in their share prices during the last couple of years when the economic outlook came into question. We’ve seen a lot of that unwinding reversed since then though.
Chairman Nigel Cayzer reckons the year was characterised by strong global economic news and an improved outlook for earnings driving asset prices across all markets. I think that’s an interesting view that should help to dispel any lingering doubts we might harbour about potential weaknesses in the macroeconomic environment. Cayzor says in the report: “The Company’s focus on smaller companies in Asia benefited the portfolio as many of these domestically-focused businesses are rooted within the region’s higher-growth economies.”
The trust sees good opportunities to invest in India, which is seeing an acceleration in economic growth and reforms that should simplify the tax regime, boost tax revenues and make it easier to do business in the country. Meanwhile, consumption in Asia is “another bright spot” seen as a long-term structural driver. Cayzer added: “The portfolio is well positioned in this aspect.”
Overall, the outlook sounds promising, and I’m encouraged by the discount to NAV to think about tucking away a few shares away in Aberdeen Asian Smaller Companies Investment Trust.
How to deal with macroeconomic uncertainty
AAS could be trading below its net asset value because investors feel uncertain about the macroeconomic outlook. Indeed, events such as Brexit here in the UK have certainly stirred up the broth and that’s why The Motley Fool has designed a special report to help you navigate uncertain economic waters with your investing.
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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.