Athelney Trust (ATY) is a Main Market listed investment trust with a portfolio which is specifically focused on small (£50-230m market cap) UK companies. All investments are liquid, either fully LSE listed or via a trading facility on AIM or AQSE. 

The portfolio comprises companies with strong profit and dividend growth records, assessed as undervalued vs (a) prospective earnings and distributions and (b) relative to their underlying asset bases (land, buildings, other assets and cash)

Track record and ambitions 

We believe investors should consider the following issues, which we review in this report: 

• The trust’s investment strategy, current portfolio, FY23 results and strong long-term track record. 

• The asset manager’s performance and strategy. EC Pohl (ECP) has been represented on the Board since 2010 and managed the trust since 2019. ECP is a proven and successful wealth manager over a sustained period. Later in this note we set out information on its own funds, and how ECP’s strategies align with ATY’s medium-term ambitions. 

• Plans to build AUM scale. ATY’s relatively small fund size (c £4.5m AUM) and strict control of expenses currently limits its internal resources and other costs. An investment trust is by definition a closed end fund but can raise money via share issues. ECP believes that this would add flexibility to management and investment decisions. It is, however, adamant that this will not be done at a dilutive price - so it will await a share price closer to NAV.

Prospects and valuation 

The shares trade at a c 10% discount to 204.7p NAV/share (31 January 2024). A core attraction for investors is the trust’s dividend record and commitment to progressive distributions. ATY agreed a 9.8p/share dividend in FY23 equivalent to a 5.3% yield, with prospects for further growth in the current and future financial years. The underlying portfolio is well diversified by company and sector, invested in entities in sound financial condition and well positioned competitively. That fits the asset manager’s conviction that it has an opportunity to identify value and capitalise on an under-researched segment. Its resources are directed to uncover opportunities to generate superior investment returns. Its decision-making processes are clearly defined and applied rigorously and without sentiment, focus on long-term performance and see-through short-term market turbulence.

Conclusion 

We see the portfolio as well placed to benefit as market sentiment towards UK smaller companies and investment trusts progressively improves. As that is reflected in improvements in underlying average equity ratings, we would expect the trust’s NAV to appreciate, with the existing high discount of its shares to NAV diminishing.