The trust’s net asset value total return dropped 7.4% throughout the year, according to its results to 30 June, compared to a 2.8% drop in the MSCI inc AIM ex ICs index.
Numis analyst Gavin Todd said the underpeformance had largely been driven by the trust’s quality growth bias, “which has been broadly out of favour during the period”.
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In response to the poor performance, the trust’s board negotiated a lower fee structure from the manager, dropping fees to 0.75% per annum on the first £175m, compared to 0.85% on the first £250m.
In addition, the manager will no longer charge for the provision of company secretarial services, saving the trust a further £75,000 annually, it said.
Overall, this is expected to reduce fees by about 12%.
Revenue per share for the trust increased 37% throughout the year, from 9.07p to 12.44p, with the total dividends of 11p representing a 36% increase on the prior year.
The trust’s discount sat at 14.3% at the end of June, with 6% of shares bought back over the year. The board has an 8% discount target in normal market conditions.
With the trust now underperforming on a one-, three- and five-year basis, the board conducted a review into the cause of this, including an assessment of whether the investment process itself is being robustly implemented.
The board reported that it still supported the manager, believing the underperformance had been a consequence of a “confluence of external events” unhelpful for the quality, growth and momentum style of the trust.
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Todd said the period had marked “a challenging start for the new lead manager”, Abby Glennie, who took over from Harry Nimmo at the end of last year.
“It is interesting to note that the manager believes valuations are attractive and that typically the market recovery for small/mid-caps comes when the outlook remains bleak,” he added.
Within individual holdings, the largest detractors from the trust were Focusrite, Hilton Food and Future, which saw their share prices drop 58%, 38% and 60% respectively throughout the year, due to supply chain issues, inflation and a softening in consumer spending.
Meanwhile, the three largest holdings in the trust, 4imprint, Games Workshop and Diploma, were also the largest contributors to its performance, rising 106%, 60% and 33% respectively.
Eight new positions were added, with eleven exited over the year.
