The Global Smaller Companies Trust (LSE:GSCT) edged ahead of its benchmark in September, but remains behind over longer periods as it seeks to address a stretch of relative weakness.

The Global Smaller Companies Trust (LSE:GSCT) recorded a modest relative win in September. Net asset value fell 1.58% on a total return basis and the shares declined 1.45%, both slightly better than the benchmark's fall of 1.85%. The discount narrowed, and it stood at 4.15% at the end of the month.

Yet the longer-term figures show why the board has been focused on performance. For the year to date, the NAV has returned 6.84% against 11.98% for the benchmark. Over one year the NAV gain was 6.94% compared with 14.93%, and over three years 26.77% against 47.06%. The shares have fared better, returning 14.78% over a year and 42.63% over three years, as the discount has narrowed.

Net asset value at the end of September was 198.85p.

About the company

The Global Smaller Companies Trust is a UK-listed Investment trust that gives shareholders access to a diversified portfolio of smaller companies from around the world. Rather than owning a handful of large positions, it spreads Capital across many holdings in North America, Japan, the UK, continental Europe and emerging markets, with the aim of growing capital and income over the long term. Its approach favours businesses with durable competitive positions, sound balance sheets and consistent returns, which is why the board describes the style as quality-focused.

As a closed-ended trust, it raises money once and invests it through a professional management team, so the share price can differ from the underlying net asset value. It earns returns through the gains and dividends from the companies it owns, and it pays a Dividend funded from that income and from reserves. Modest gearing is used to enhance returns, and the board can buy back or issue shares to help manage the discount.

The financial picture in the article shows why performance has been the central topic. Net asset value stood at 198.85p at the end of September, and the dividend has risen for 56 consecutive years, a record that underlines the trust's emphasis on steady income growth. At the same time, the net asset value return lags the benchmark over one and three years, so the question for shareholders is whether the quality approach can recover its relative position.

September's movers

The Federal Reserve, the European Central Bank and the Bank of Japan all raised rates in September, and long-dated yields rose sharply, with the 10-year US Treasury ending the month at 5.29%.

MaxLinear, Solaris Energy Infrastructure, Entegris and XP Power were among the top contributors during the month. Wheaton Precious Metals, which is the largest holding at 2.3% of gross assets, was among the detractors, along with Jones Lang LaSalle, Trustpilot and GlobalData. Rest of World holdings added to relative returns as emerging markets outperformed the wider world index.

The portfolio remains widely diversified. North America accounted for 46.4% at the end of September, Rest of World 20.4%, Japan 12.8%, the UK 9.5% and Continental Europe 9.2%, with cash and fixed interest at 1.7%. After Wheaton, the largest positions were Encompass Health, SharkNinja, CACI and Standex International, and no holding other than Wheaton exceeded 1.4%. Net gearing was 4.53%.

How smaller company trusts work

Smaller companies are often less closely followed than large caps, and they can grow faster from a lower base. They also tend to be more sensitive to financing costs, economic cycles and investor sentiment. An investment trust holding a global mix of them gives an investor one listed vehicle in place of dozens of separate positions, although the cost is that the shares can trade at a discount to the value of the assets.

Style matters a great deal in this part of the market. When investors favour speculative, lower-quality businesses, a quality-focused portfolio can fall behind a broad index even if its holdings are performing well operationally. The article's reference to rotation and shifting sentiment around artificial intelligence illustrates how quickly Leadership can change.

What to watch next

Three themes are likely to shape the next reports: the direction of long-dated bond yields, which affect valuations of growth-oriented smaller companies; the pace of Buybacks and the resulting discount; and any visible improvement in regional returns against local small-cap indices.

Monthly updates offer a regular check on whether September's modest relative gain was a one-off. A sustained run of results ahead of the benchmark would be needed to narrow the gap shown in the year-to-date and three-year figures, and the half-year report should give a fuller account of the steps the board and manager have described.

Dividend record and buybacks

The annual results published on 26 June covered the year to 30 April. Net asset value total return was 21.0% and share price total return 28.8%, compared with 31.3% for the benchmark. The dividend for the year rose 5% to 3.15p, the 56th consecutive annual increase, and the final payment of 2.45p went ex-dividend on 6 August and was paid on 18 September.

Buybacks played an important part in the narrowing of the discount to 5.4% from 11.0%. The company (LSE:GSCT) repurchased 29.1 million shares in the year, about 6.5% of its Share Capital at the start of the period, at a cost of £50.3m, followed by a further 4.2 million by 22 June.

Chair Graham Oldroyd said the year had been challenging for the trust's quality-focused approach, attributing the shortfall to sentiment shifts around artificial intelligence and a rotation into more speculative, lower-quality stocks. Regional returns under lead manager Nish Patel lagged local small-cap indices in most markets, including North America, where the portfolio made 21.5% against 38.6%. The board and manager have said they are taking steps to address this.

For the FTSE 250 constituent, a single month's improvement falls well short of a change in trend, and shareholders will be looking for it to be sustained.