Jonathan Brown and Robin West are fundamentally bottom-up stockpickers, with a wide remit across UK stocks. Their cautious approach to the Invesco Pepertual UK Smaller Companies Trust (IPU) seeks to achieve above average returns through the cycle with lower volatility. The managers look for high quality businesses with growth characteristics, and have a clear preference for companies with balance sheet strength. This, and a portfolio which typically comprises around 80-90 holdings with no position much bigger than 3%, means the managers say they “can sleep at night”. Relative to the index (and some peers) the trust currently has more of a “value” angle, prompted by a view that Brexit has led to a global aversion to domestic UK exposure. The team feels that many smaller company stocks which have exhibited strong momentum are quite “crowded”, and that valuations are in some cases out of kilter. As we discuss in the performance section, this has been helpful to the trust in relative terms in the recent market ructions. Reflecting their caution, the team has around 5% cash in the portfolio currently. Jonathan and Robin struggled relative to more “growthy” peers for several months leading up to the summer, and since then have been starting to claw back their relative underperformance. In contrast, IPU has been largely outperforming the index, until the very recent bout of volatility, which has seen that outperformance over one year come back. The trust remains ahead of the benchmark both over the past 12 months and year to date. Over the past five years, the trust has delivered an NAV total return of 76%, relative to the benchmark’s return of 42%, and is so far beating the index in all of the past five calendar years (including 2018 YTD). The five-year alpha score is 5.3% pa, illustrating the managers’ strong value add through their lower volatility approach. The dividend, which currently yields 4.4%, is achieved by distributing all the available income arising from the portfolio, boosted by a small proportion from capital profits. The yield therefore compares very favourably relative to other small company funds and trusts, but also those in the equity income sector. And more importantly, the fact that a proportion of the dividend comes from capital means that the managers have not had to tilt their investment approach to achieve this level of income for shareholders.