Aberforth cuts mid-caps

The managers of the £845 million Aberforth UK Smaller Companies trust (ASL), note the 'unbalanced world has been good for equities' and also the market's apparent ease with the imbalances. However, they remain cautious.

Aberforth points out the UK economy

shares several 'structural challenges' with the US, such as a large current account deficit, an indebted consumer sector and an inverted yield curve. Potential inflationary pressures also exist.

The managers have reduced the trust's exposure to mid-caps in favour of smaller companies. It has 41% in mid-caps compared with 59% in the benchmark.

They further cut exposure to oil & gas producers, mining, real estate and general financials, despite these sectors' outperformance, as they saw 'no significant fundamental improvement' from their previously negative views. This contrarian stance means the fund is currently overweight in technology, media and telecoms stocks.

Citywire Verdict

Citywire continues to favour the Aberforth team as one of its preferred ways to gain exposure to the UK small-cap arena and would expect the fund to outperform on a risk-adjusted basis over the medium-to-long-term. Investors must recognise UK small-caps have had a very strong run and may struggle to continue to deliver such absolute performance.