LONDON - Schroder UK Mid Cap Fund PLC (SCP) has disclosed its financial results for the year ending September 30, 2024, revealing a net asset value (NAV) total return of 17.3%. This performance, however, lagged behind the FTSE 250 ex-Investment Trusts index, which returned 21.4% for the same period.
The fund's relative underperformance was attributed to a market shift that favored interest rate-sensitive companies with weaker balance sheets—sectors where SCP has minimal exposure. Despite this, SCP's proposed final dividend, in conjunction with the interim dividend paid on August 9, 2024, is expected to bring the total dividends for the year to 21.5p per share. The revenue return per share stood at 20.54p, indicating that the dividend payout is not fully covered by earnings.
As of September 30, 2024, the discount at which SCP shares trade relative to NAV slightly widened from 12% to 12.3%. However, in the weeks following, the discount has narrowed to 11.3% as of November 26, 2024. The fund also increased its net gearing from 6.8% to 9.5%, which positively contributed to its performance amid rising market conditions.
The fund's managers have been actively seeking investment opportunities in companies that are poised for structural growth within their market niches. Outgoing chairman Robert Talbut expressed optimism about the future of UK mid-caps and the fund's portfolio, emphasizing their focus on businesses with potential for long-term growth.
Kepler Trust Intelligence, in its analysis, noted SCP's strong absolute returns despite not keeping pace with its benchmark. The analysis suggested that the recent lowering of interest rates by the Bank of England has temporarily disadvantaged SCP due to its low exposure to cyclical companies that have benefited from such monetary policy. However, SCP's investment strategy may prove advantageous for long-term returns as it is less dependent on monetary policy.
The analysis also pointed out the potential for a narrowing valuation gap between FTSE 250 companies and their larger FTSE 100 counterparts, which could bode well for the fund. Additionally, the possibility of merger and acquisition activity may support the performance of UK mid-caps going forward.
The report, based on a press release statement, also highlighted the consistent increase in SCP's dividend since inception, despite the current year's dividend not being fully covered by revenue return. It concluded by suggesting that SCP's current share price discount could present an attractive entry point for long-term investors.
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