BlackRock Throgmorton Trust 03 April 2019
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by BlackRock Throgmorton Trust. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
Now the sole manager, Dan Whitestone offers a growth-oriented portfolio of UK small and mid caps through BlackRock Throgmorton Trust.
The trust is referred to as an ‘extension fund’ by BlackRock, using both long and short positions to deliver consistent capital growth and attractive total returns. More specifically, this means the trust can increase its overall gross exposure to the market, varying its net exposure over time. Dan aims to manage the portfolio so that the net exposure amounts to between 70% of NAV and 115% of NAV. The shorts are typically a smaller size than long positions, between 0.5% and 1% of NAV.
Fundamental analysis is at the heart of the strategy - Dan looks for high quality, differentiated companies which sit in structurally sound industries. Making full use of the investment trust structure, THRG is typically geared through the use of CFDs. As opposed to bank borrowing which incurs arrangement fees etc, CFDs allow the manager ultimate flexibility to react opportunistically to share price movements. Currently, Throgmorton’s gross gearing stands at 23%, although the net exposure (deducting shorts) is 90%.
The trust has an exceptional long-term track record of outperformance relative to the benchmark and peer group alike. Over the past five years (to the end of March), the trust has delivered NAV returns of 67.6%, seven times greater than the benchmark Numis Smaller Companies plus AIM ex inv com, (9.8%) and close to double the FTSE All Share (34.9%). The trust has also significantly outperformed the previous benchmark, the Numis SC Ex Invt Com, outperforming by c.38% over the past five years.
Given the company invests in one of the most out of favour sectors across the globe, the trust had a relatively strong year in 2018. The fact the smaller companies portfolio outperformed the benchmark by over 6%, and only marginally underperformed the FTSE All share (-9.5%) over this period, is surely a testament to the manager and his quality driven investment style, and ability to add alpha through shorts.
The trust’s discount has narrowed significantly since the referendum in 2016 – when it reached a 22% discount at one point - and we have continued to see it narrowing over 2018 and 2019 ytd. Currently the discount sits at close to 5.5%.
BlackRock Throgmorton has long been one of the most reliable smaller companies vehicles in the UK in terms of performance. The trust has consistently been in the top three trusts in the sector for NAV returns, and over five years has delivered the greatest NAV returns of the 10-strong sector.
While there is still uncertainty surrounding the UK, THRG is a trust that is able to benefit from volatility through its ability to flex its overall market exposure, something a traditional long only fund cannot. Dan and the team have demonstrated that they are able to generate alpha in both falling and rising markets. Although the trust is trading at a historically narrow discount (5.5%), given its unique approach and strong performance, we would not be entirely surprised if we saw the trust eventually trade on a premium.
|Exceptional track record of outperforming peers and the benchmark
|Uncertainty continues to cloud the UK, which could impact small caps in particular
|Can benefit from both falling or rising markets through short and long book
|The use of gearing could lead to more volatility in returns
|Relatively cheap OCF