The share price total return was -0.1%. By contrast, the total return of the company’s reference index, the Numis Smaller Companies plus AIM (ex-investment companies) Index, was significantly worse at -10.7%.

Despite this, the trust has significantly overperformed over the last one, three, five and ten years.

The board is therefore proposing a final dividend of 5.00p per share, which will make a total dividend payment for the year of 7.70p per share, the same level as in 2019. This will require that £959,000, or 0.96p per share, is drawn from revenue reserves.

Harry Nimmo, manager of Standard Life UK Smaller Companies Trust, said: “Investing in smaller companies should be viewed as a long-term investment and we have no doubt that patient investors will be rewarded in the longer term. Our stable process has been seasoned by four full economic cycles. We remain very optimistic about the prospects for the portfolio and the company in the long term.”

Liz Airey, chair of Standard Life UK Smaller Companies Trust, commented: “This is, regrettably, the second year in a row that we have had to report negative absolute returns to you albeit also a second year of meaningful outperformance against the reference index.

“However, given the market collapse in March, when the portfolio lost almost over 40% of its value, the fact that we are reporting a NAV total return that is down only 0.5% underlines the pace of the recovery in share prices from the initial severe market reaction to the pandemic. I would also observe that one year numbers can be volatile; had the year end of the company been in May, then we would have reported positive numbers both in 2019 and this year.” 

Ms Airey continued: “The basic revenue return per share for the year ended 30 June 2020 was 6.74p (2019: 8.80p). The net decline of over 23% is a consequence of dividend cuts and suspensions that were announced by a raft of investee companies largely in March and April.

“This decline in earnings means that the portfolio has not generated sufficient income, after costs, to cover fully a dividend of the same amount as in 2019. The understandable reaction to the COVID crisis by a number of the investee companies of cutting their dividends is the root cause of the shortfall in distributable income. 

“The board discussed at length the implications of this shortfall on its options for the dividend and concluded that it should recognise one of the key benefits of investment trusts, that of being able to use revenue reserves to smooth dividends when the need arises, as in the current exceptional circumstances. In arriving at its decision, the board considered a range of factors, including the investment objective of the company, the likely shape of the wider recovery and the Investment Manager’s outlook for the Revenue Account in 2021 and 2022.”