Abby Glennie

Over the period, the trust’s share price rose by 46.9%, compared to a 0.1% increase in 2020.

The trust has also announced total dividends per share of 46.9%, subject to final shareholder approval. By comparison, the UK smaller companies sector, as represented by the Numis Smaller Companies plus AIM (ex investment companies) Index, delivered a total return of 52.3%. Over the same period, the FTSE 100 Index delivered a total return of 18.0%.

Harry Nimmo and Abby Glennie, investment managers of Standard Life UK Smaller Companies Trust, said: “A NAV total return of 41.9% would normally be considered an outstanding return figure. However, our smaller companies reference index did even better, delivering a total return of over 52%.

“This reflects the index’s heavy weighting in higher risk value and recovery stocks. These are areas that traditionally perform less well over the economic cycle but come into their own in value recovery led markets which was the key feature of the mid-period of the financial year.

“We have always been very clear that the portfolio is positioned to deliver outperformance over the cycle and that there will be periods when it will underperform. Over the more than 20 years that this investment strategy has been deployed for the company, it has been seen that during periods of sharp recovery that typically follow a crisis in the market, the portfolio underperforms for a time as investors focus on companies that have been particularly hard hit during that downturn.

“These stocks do not normally meet our investment criteria. Thankfully, such events only occur rarely and during rising markets of extreme smaller company popularity. We are long-term investors and are not timing experts and do not consider it appropriate to attempt to switch into such stocks for a short period.”

Commenting on the outlook, Liz Airey, chairman, added: “We are frequently being reminded that ‘past performance is no guide to the future’, but the results of the last 12 months, being characterised by strong absolute performance and weak relative performance, are typical of what the investment process operated by the Investment Manager has delivered in similar market conditions over the last 20 years.

“Specifically, the process has not normally delivered relative outperformance in the early stages of a recovery. However, as the initial euphoria wanes and investors refocus on fundamentals, the inherent quality of the companies in which the portfolio is invested starts to come back to the fore and is reflected in improved valuations. We have seen evidence of this in the past few months, with the relative outperformance in April and June 2021 being higher than any monthly return since late 2015. The board supports the Investment Manager’s belief that consistency of investment approach is more important to investors than attempting to adjust the investment process to reflect what are expected to be short-term market dynamics.

“Over the past 18 months we have been faced with very considerable near-term uncertainties resulting initially from Brexit, then from Covid. We can now hope for a gradual return to something that resembles pre-Covid normality, leading to improved prospects and greater visibility of outlook for investee companies.

“However, we are now in a period where the uncertainty lies more in the longer-term combined consequences of these events. We must be mindful that they have brought significant - and ongoing - changes in the underlying operating and economic environment for our investee companies which bring both increased opportunity and risk. All of this reinforces the message that investors need to see an investment in the company as a long-term decision.”