Amanda Yeaman, Investment Manager for abrdn Smaller Companies Income Trust PLC shares her investment strategy for today’s challenging market conditions

A £80m investment trust that looks to provide a high and growing dividend and capital growth from a portfolio invested principally in the ordinary shares of small companies and UK fixed income securities.

Amanda Yeaman, Investment Manager: “Top-down, macroeconomic effects rather than stock-specific issues have driven the rotation away from quality-growth stocks. Higher inflation, interest-rate rises, political tensions and supply-chain challenges have heightened investor uncertainty. Notwithstanding this, we have been encouraged by the strong earnings reported by holdings in the Trust, confirming that the sell-off in our quality-growth companies is inconsistent with the underlying trading and fundamentals of these businesses.

“It is encouraging that the Matrix scores across the Trust have remained strong, supported by the underlying earnings strength and continued quality characteristics.

 “The market rotation has driven the valuation differential between value and quality growth companies to compress. Many cyclical-value stocks will also face stiff headwinds, including the possibility of further pandemic restrictions, inflationary pressures, rising interest rates, falling consumer disposable incomes and continued supply-chain disruptions. We are also mindful of the challenging outlook for the consumer, given the cost-of-living headwinds. 

“In such a challenging environment, we believe quality-growth businesses should prove more robust, resilient and reliable. We hold companies with strong market positions and pricing power, with a better ability to pass on higher costs and protect margins. Such companies will have opportunities to gain market share, in our view.

“It is difficult to predict when this macro-driven value rally will end, but in March the UK market was less driven by the macro and less against our style as we have begun to hear from companies as they report. So, while there are signs that the impact of January/ February is easing, there are still a number of uncertainties ahead. While companies are still passing on price inflation, with many businesses having had a few price rises now, it remains tested for how long that can continue without affecting demand. We continue to look through the top-down macroeconomic ‘noise’ by remaining focused on company reporting and fundamentals.”

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