History doesn’t repeat but it often rhymes
The investment objective of The Scottish Oriental Smaller Companies Trust (the Trust) is “to achieve long-term capital growth by investing mainly in smaller Asian companies”. Behind this admittedly rather dry objective is a distinct and well-defined investment approach and process which has evolved since the formation of our team in 1988.
A central aspect of our investment approach is the focus on risk management. The Trust’s long-term returns are predicated upon preserving money during downturns, not on chasing upside during periods of euphoria. As the calendar year returns below show, the Trust did not keep pace with the market’s returns during the dot-com bubble in 1999, the years before the global financial crisis or the recent period before Covid-19. In each of these periods, we found market participants becoming fascinated with the shiny objects of the time – whether this was the technology companies in the late 1990s, real estate and infrastructure developers in 2007 or loss-making businesses touting an eventual “path to profitability” in recent years. The Portfolio Manager’s Review at the global financial crisis in 2007 highlighted this challenge.
“In its pursuit of capital preservation as well as growth, the Trust’s Board and its Investment Manager have always accepted that it is sometimes necessary to forego short term gains. In the past such an approach has led to long term outperformance of the benchmark and, more important, exceptional capital returns.”
The following chart demonstrates than in the 27 years that the Trust has existed it has only fallen further than the market over two calendar years. These steady returns have contributed to the Trust’s outperformance of the market in the longer term.
Calendar year performance
Data provided in GBP. Since inception calculated from 29 March 1995. These figures refer to the past. Past performance is not a reliable indicator of future results. The benchmark shown is on an income reinvested gross of tax basis. Sources: First Sentier Investors.
To borrow a quote from the economist JK Galbraith, it is sometimes said that stock market forecasters only really exist to lend credibility to astrologers. Our belief is that we do not possess any particular ability to predict the future better than our peers. We are however keen students of history and have over 30 years of experience of meeting company management teams. This experience helps us to understand how management might be expected to act under periods of operational stress, whether they are skilled at allocation of money, and if they will act as prudent stewards of our clients’ money. A clear understanding of management teams’ history of execution, particularly in challenging conditions often presented by emerging markets, gives us the confidence to back the executives of our favourite companies to preserve capital when markets fall.
Our conservative positioning helped to preserve money in the inevitable downturns as well as the periods of recovery following them. Since inception, the Trust’s performance exceeded that of the MSCI AC Asia ex Japan Index in 79% of down-market periods compared to 39% of up-market periods.
Data provided in GBP. Since inception calculated from 29 March 1995. The MSCI AC Asia ex Japan Index is not the current benchmark. This index is used as a comparison as the MSCI AC Asia ex Japan Small Cap Index was not available at the time of the Trust’s inception. These figures refer to the past. Past performance is not a reliable indicator of future results. The benchmark shown is on an income reinvested gross of tax basis. Sources: First Sentier Investors.
On the ground, our companies are witnessing strong demand as Asian economies emerge from the disruptive Covid-period. Their ability to set prices allows them to protect their profitability through inflationary periods, whilst their weaker peers struggle. On this basis we hope that the companies that we invest in, the market leaders in their respective categories, are likely to emerge with higher market shares in the coming years.
Scottish Oriental Smaller Companies Trust annual performance (% in GBP) as at 30 June 2024
| 12 months to 30 Jun 24 | 12 months to 30 Jun 23 | 12 months to 30 Jun 22 | 12 months to 30 Jun 21 | 12 months to 30 Jun 20 | |
| NAV per share | 18.5 | 18.4 | 0.6 | 25.2 | -15.9 |
| MSCI AC Asia ex Japan Index1 | 13.9 | -5.2 | -14.4 | 25.2 | 5.0 |
| MSCI Asia ex Japan Small Cap Index2 | 21.9 | -0.8 | -8.6 | 45.4 | 1.6 |
| Share Price | 21.8 | 11.5 | -1.7 | 37.9 | -18.4 |
Data provided in GBP. Since inception calculated from 29 March 1995. The MSCI AC Asia ex Japan Index is not the current benchmark. This index is used as a comparison as the MSCI AC Asia ex Japan Small Cap Index was not available at the time of the Trust’s inception. These figures refer to the past. Past performance is not a reliable indicator of future results. The benchmark shown is on an income reinvested gross of tax basis. Sources: First Sentier Investors.
Footnotes
1 The MSCI AC Asia ex Japan Index covers developed markets: Hong Kong and Singapore; and emerging markets: China, India, Indonesia, Korea, Malaysia, the Philippines, Taiwan and Thailand.
2 The MSCI AC Asia ex Japan Small Cap Index covers smaller companies in developed markets: Hong Kong and Singapore; and emerging markets: China, India, Indonesia, Korea, Malaysia, the Philippines, Taiwan and Thailand.
Risk factors
Capital at risk. The value of investments and any income from them may go down as well as up and are note guaranteed. Investors may get back significantly less than the original amount invested.
Read full risk factors
Risk factors
This material is a financial promotion for The Scottish Oriental Smaller Companies Trust Plc (the “Trust”) intended for those people resident in the UK for tax and investment purposes.
Investing involves certain risks including:
- The value of investments and any income from them may go down as well as up and are not guaranteed. Investors may get back significantly less than or none of the original amount invested.
- Emerging market risk: Emerging markets tend to be more sensitive to economic and political conditions than developed markets. Other factors include greater liquidity risk, restrictions on investment or transfer of assets, failed/delayed settlement and difficulties valuing securities.
- Currency risk: the Fund invests in assets which are denominated in other currencies; changes in exchange rates will affect the value of the Fund and could create losses. Currency control decisions made by governments could affect the value of the Fund's investments and could cause the Fund to defer or suspend redemptions of its shares.
- Smaller Companies Risk: investments in smaller companies may be riskier and more difficult to buy and sell than investments in larger companies.
- Leverage risk: the Trust may be leveraged due to: i) borrowings; or ii) the use of derivatives to hedge currency exposure. The amount of leverage employed is disclosed on the Trust’s website from time to time. Higher leverage increases the potential risk of loss. Investment trust share prices may not fully reflect Net Asset Value.
- The Trust’s share price may not fully reflect net asset value.
Where featured, specific securities or companies are intended as an illustration of investment strategy only, and should not be construed as investment advice or a recommendation to buy or sell any security.
All information included in this material has been sourced by First Sentier Investors and is displayed as at September 2024 unless otherwise specified and to the best of our knowledge is an accurate reflection as at this date.
For an overview of the terms of investment, risks, returns and costs and charges please refer to the Key Information Document.
If you are in any doubt as to the suitability of our funds for your investment needs, please seek investment advice.
Important Information
This document has been prepared for informational purposes only and is only intended to provide a summary of the subject matter covered and does not purport to be comprehensive. The views expressed are the views of the writer at the time of issue and may change over time. It does not constitute investment advice and/or a recommendation and should not be used as the basis of any investment decision. This document is not an offer document and does not constitute an offer or invitation or investment recommendation to distribute or purchase securities, shares, units or other interests or to enter into an investment agreement. No person should rely on the content and/or act on the basis of any material contained in this document.
Net Asset Value (NAV) performance is not the same as share price performance and shareholders may realise returns that are lower or higher than NAV performance.
This document is confidential and must not be copied, reproduced, circulated or transmitted, in whole or in part, and in any form or by any means without our prior written consent. The information contained within this document has been obtained from sources that we believe to be reliable and accurate at the time of issue but no representation or warranty, express or implied, is made as to the fairness, accuracy, or completeness of the information. We do not accept any liability whatsoever for any loss arising directly or indirectly from any use of this information.
References to “we” or “us” are references to First Sentier Investors.
In the UK, issued by First Sentier Investors (UK) Funds Limited which is authorised and regulated by the Financial Conduct Authority (registration number 143359). Registered office Finsbury Circus House, 15 Finsbury Circus, London, EC2M 7EB number 2294743.
Scottish Oriental Smaller Companies Trust plc (“Company”) is an investment trust, incorporated in Scotland with registered number SC0156108, whose shares have been admitted to the Official List of the London Stock Exchange plc. The Company is an alternative investment fund and has appointed First Sentier Investors (UK) Funds Limited as the alternative investment fund manager for the Company. Further information is available from Client Services, First Sentier Investors (UK) Funds Limited, Finsbury Circus House, 15 Finsbury Circus, London, EC2M 7EB or by telephoning 0800 587 4141 between 9am and 5pm Monday to Friday or by visiting www.scottishoriental.com. Telephone calls with First Sentier Investors may be recorded.
First Sentier Investors entities referred to in this document are part of First Sentier Investors a member of MUFG, a global financial group. First Sentier Investors includes a number of entities in different jurisdictions. MUFG and its subsidiaries do not guarantee the performance of any investment or entity referred to in this document or the repayment of capital. Any investments referred to are not deposits or other liabilities of MUFG or its subsidiaries, and are subject to investment risk including loss of income and capital invested.
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