Aberforth Geared Income Trust (AGIT)

[Dyker]

Good afternoon all.

Aberforth Geared Income Trust (AGIT) will wind up at the end of June 2017, and the directors have announced that shareholders will be offered an option to roll over their AGIT shares into a new Aberforth Split Level Income Trust (ASLIT). ASLIT will invest in smaller quoted UK companies. No prospectus for the reconstruction has been issued yet, but ordinary shareholders in AGIT will apparently be able to roll over into ordinary shares of ASLIT at an initial price of 100p, and ZDP shareholders can roll over into ZDP shares of ASLIT. ASLIT will comprise a 4:1 ratio of ordinary to ZDP shares. ASLIT ordinary shares will target a dividend of 4p per share (annual yield 4% based on initial 100p price) for the year to June 2018.

I currently hold AGIT ordinary shares, bought in August 2015, which I regard as having performed well, both on income and capital growth. I am primarily interested in income and I am presently inclined to regard a 4% yield as achievable based on AGIT’s past performance. Therefore, although I will wait for the prospectus before deciding, I am inclined to take a chance and rollover into ASLIT ordinary shares.

Does anyone else here hold AGIT shares? If so what is your initial view on the rollover option?

Dyker

[matchmade]

Hi, I too have held AGIT since August 2015, though I sold a proportion off when the share price was doing nothing for most of 2016, and have since bought back in to benefit from the closing of the discount before windup on 30 June. Overall I am 26% up, which isn't bad for 21 months of investment and for a small cap trust going through the Brexit trauma. I think there should be another 5% to go to close the discount and receive the final 3.2% dividend, which goes ex-doc on 11 May and is payable on 30 May.

The terms of ASLIT seem fair enough regarding roll-over, though I would have liked some kind of discount or subscription share to be offered to existing AGIT shareholders, to encourage them to stay with ASLIT. It's noticeable that they have reduced the split cap gearing from about 40% to 25%, which reduces the risk profile but also perhaps the potential returns. Aberforth are a well-regarded small-cap specialist, and I bought into AGIT based on its long-term record and the recommendation of John Baron, who bought it for his Thematic portfolio of investment trusts (his rationale was that UK small cap dividends are improving faster than large caps). I'm invested for capital growth so am after the best possible NAV return rather than an income, and I will probably continue with this approach after I "retire": I calculate that if I do ever need extra income, I can simply sell a few shares, preferably at a time when markets are quiet or rising.

AGIT's done well, but I'm a bit concerned that the extra income may have come at a price of extra volatility, and the need for income may reduce the trust's range of options when selecting its holdings. At the moment I am leaning towards taking the cash and switching to RIII, a consistently-good performer with lower volatility. Or I may hedge my bets, split my small cap holdings and invest some in ASLIT, some in RIII and the rest in SDV and Invesco Perpetual UK Smaller Companies, all of which have done well over the last five years, and one cannot know which one is going to perform best over the coming post-Brexit years.