Global Smaller Cos Trust takes 'conservative' approach amid 'AI boom'

Global Smaller Cos Trust PLC on Tuesday said its half-year total return underperformed against the benchmark, although its net asset value increased.

The London-based, smaller company-focused investment trust’s NAV per share was 190.71 pence as of October 31, up 14% from 167.05p on April 30 and up 5.5% from 180.80p a year prior.

Shares in Global Smaller Cos were flat at 177.40p late Tuesday morning in London.

The investment trust reported a 15.6% NAV total return including dividends for the six months that ended October 31, underperforming against the plus 21.6% return from its benchmark index.

Global Smaller declared a 0.70p per share interim dividend, unchanged from the year before.

‘Financial results from companies in the aerospace and defence sector revealed strong demand from customers as the West continues to increase its expenditure on defence after years of under-investment,’ Lead Manager Nish Patel said.

‘Businesses linked to expenditure on AI and data centres also delivered impressive earnings. Positive sentiment in this area extended to adjacent industries such as power generation and nuclear...Takeover activity was vibrant, with five of our companies receiving takeover bids in the period.’

Looking ahead, Patel commented: ‘Positively, trade uncertainty appears to be clearing, although the full effects of the policies are probably yet to be felt. Beyond these challenges, we can look forward to deregulation and the benefits of the recently passed tax bill in the US.’

He added that Global Smaller Cos is ‘paying close attention to corporate credit markets’ and that regarding the ’AI boom’: ‘Whilst elevated levels of spending in the near term should be supportive of growth, there is the potential for investors to be disappointed if sufficient returns from these projects are not delivered.’

Patel concluded: ‘It remains a very uncertain investing environment, yet market participants seem complacent. Accordingly, the backdrop calls for caution rather than aggression.

‘Whilst our conservative style of investing is currently not in vogue, we remain confident that it will come back into favour and that it is the right approach to take over the long term.’

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