SCOTTISH ORIENTAL SMALLER COMPANIES TRUST (SST)   £13.50

Market cap: £324 million

Despite some stand-out individual performances in 2023, emerging markets remain under-owned and undervalued with heavyweight country China firmly out of favour with investors.

One savvy way to benefit from a revival in sentiment towards the region’s corporate small fry is to buy Scottish Oriental Smaller Companies (SST), a £324 million-cap trust which achieves long-term capital growth by investing in high-quality small caps listed everywhere from India and Indonesia to China, Vietnam, the Philippines and South Korea, with sub-$5 billion market caps.

Shares believes the 12.4% discount to NAV (net asset value) on this dividend-paying company offers a compelling entry point into a fund with a formidable long-run record; it is one of an elite band of 32 trusts which would have made investors more than £1 million had they invested the full annual ISA allowance in the same trust each year from 1999 to 2023, according to research from the AIC (Association of Investment Companies).

Investing in emerging markets can be risky, but Scottish Oriental Smaller Companies’ approach is inherently conservative, focused on management quality and corporate governance, franchise strength and the sustainability and predictability of growth, and it offers a play on the under-penetration of consumer staples and financial products across Asia.

Steered by FSSA Investment Managers, an investment team within First Sentier Investors, the trust is managed with an absolute return mindset by Singapore-based Vinay Agarwal, whose focus is as much on downside risk as on potential returns.

Since Agarwal took over as lead manager in 2016, the number of holdings has been pruned back to build a more high-conviction portfolio with bigger stakes in the companies the bottom-up stock-picker admires. Agarwal and his team continue to find new ideas across markets and the focus on quality has skewed the portfolio towards India rather than China, the former representing 44.4% of assets versus 13.3% for the latter.

Top 10 holdings as of 31 January included juice drinks producer to instant noodle supplier Uni-President China (0220:HKG) as well as oral care powerhouse Colgate-Palmolive India (COLPAL:NSE), Indian natural gas distributor Mahanagar Gas (MGL:NSE) and Century Pacific Food, the largest canned food producer in the Philippines.

Since its March 1995 launch, Scottish Oriental Smaller Companies’ NAV per share has risen by a cumulative 1,992%, breezing past the 290% return from the MSCI Asia (ex Japan) Small Cap Index. While there is no formal discount control mechanism, the board has a history of using buybacks to support the share price. 

Ongoing charges on the trust are 0.95%. 

st the 290% return from the MSCI Asia (ex Japan) Small Cap Index. While there is no formal discount control mechanism, the board has a history of using buybacks to support the share price. 

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