The managers of the Abrdn UK Smaller Companies Growth Trust plc said they believe “we are still in the early stages of recovery for smaller companies, with further upside potential” as the £400 million fund reported that its net asset value (total return) for the year to June 30, 2025, was +6.8% and share price (total return) was +11.4%.
By comparison, the UK smaller companies sector as represented by the Deutsche Numis Smaller Companies plus AIM (ex-investment companies) Index delivered a total return of +7.8%.
Abrdn UK Smaller Companies Growth Trust’s “discount” narrowed to 9.0%.
Amanda Yeaman
Abby Glennie and Amanda Yeaman, Investment Managers of Abrdn UK Smaller Companies Growth Trust plc, said: “It is important to recognise that the UK equity market is not the UK economy. Many UK listed companies are global in nature, delivering growth across diverse geographies and sectors.
“Our process identifies companies with strong fundamentals, resilient earnings, and capable management teams, regardless of the broader economic narrative.
“While further interest rate cuts are anticipated, they are not guaranteed, and in this environment valuation discipline is important. Meeting and beating expectations remains a key driver of share price performance, with reporting results continuing to prompt sharp moves in both directions.
“The Matrix continues to guide our portfolio construction, helping us identify companies exhibiting improving Quality, Growth, and Momentum characteristics. It remains a valuable tool through the cycle, showing us companies with earnings momentum. While IPO activity has been limited, we do not feel constrained for investment ideas.
“We believe we are still in the early stages of recovery for smaller companies, with further upside potential. The current environment is one marked by improving sentiment towards UK investments as demonstrated by the outperformance of smaller companies over large companies in recent months.
“The market continues to demonstrate attractive valuations and we remain optimistic about the outlook for UK smaller companies. The macroeconomic environment, whilst still with challenges, appears more compelling than when we wrote a year ago, and when combined with our disciplined investment process positions us well to capture the opportunities ahead.”
Liz Airey, chair of Abrdn UK Smaller Companies Growth Trust, said: “This time last year, UK investors were focussed on two significant uncertainties: the identity of the next President of the USA and how the new UK Chancellor would manage to balance her initial budget.
“Whilst both of those are now clear, the levels of economic and fiscal uncertainty in both the UK and US seem just as elevated, and broader geopolitical issues remain unresolved. Consequently, market sentiment is unsettled and markets remain volatile. This looks set to continue for the foreseeable future.
“In the UK specifically, navigating a path to growth for the Government is beset with obstacles, even without accounting for the ongoing threats by the US to alter trading tariffs. It does feel as though the effect of external influences on markets has been higher in recent years than through modern history, and this tends to drive short-term volatility.
“There is clear concern that the Chancellor will need to increase the tax take again in the Autumn and the presumption is that this cannot be good for the economy.
“Having said that, we do need to recognise that press coverage in the UK is inevitably focused on the woes of the domestic economy; many developed economies are in equally challenging positions and UK stock market valuations remain cheap by historic standards.
“To an extent, this is borne out by the feedback that the portfolio managers are hearing when they talk to the management teams of the companies in the portfolio. Their message is very different; their companies are mostly doing well and have generally had a good first half of the year.
“This is the key for the portfolio. When looking ahead and at the prospects for the Company, it is important to remember that we invest in companies, not markets and, more than that, we invest in the proven experience and ability of the management teams.
“We are investing in companies led by teams who have, in the last 10 years, had to navigate a number of major geopolitical issues, including the recent impact of US trade tariffs, and some of them have done very well, significantly outperforming the reference index.
“This is the opportunity that active management offers. Past performance is not a guide to the future, but there are some high-quality companies out there and the portfolio managers are focused on identifying them to incorporate into the portfolio.”