BlackRock Smaller Companies aims to achieve long-term capital growth through investment mainly in listed UK smaller companies. For the past 17 years the trust has been led by Mike Prentis, however it recently announced that he will be stepping down at the June AGM and co-manager Roland Arnold will be taking over the reins. With this said, very little will change about the manner in which the portfolio is run, and the focus will continue to be on finding growth companies with potential to become much larger through a combination of top-down and bottom-up analysis.
The portfolio has become increasingly concentrated over the past year, as the managers have been selling a number of holdings where their conviction has weakened. Currently the portfolio is made up of c.120 stocks, and it is well diversified by sector and underlying revenues. The team continue to have a solid exposure to companies with an international presence, with over half of the portfolio’s revenues coming from abroad. At a sectoral level, the largest active overweights come from media (+7.4%), financial services (+7.3%) and industrial engineering (+5.2%). The company offers little exposure to travel & leisure companies, food producers and general retailers, many of which are UK focused. The company is also underweight software and computer services businesses as the team believe that ongoing political uncertainty could continue to impact business investment decisions, such as IT spend.
The company has a strong long-term track record of outperformance of not only its benchmark - the Numis Smaller Companies Plus AIM excluding Investment Companies - but also of its open and closed ended peers in the UK Smaller Companies sectors. Over the past five years the company’s net asset value per share has delivered returns of close to 80%, 30% ahead of the IA sector peer group and 25% ahead of the AIC peer group (all calculations on a total return basis). Perhaps more impressively, the company’s NAV has outperformed the benchmark by 48% over the same period. More recently, performance has been affected by political uncertainty surrounding the UK, which has impacted smaller companies share prices.
BlackRock Smaller Companies is a well-run company, with a long-term track record of strong performance. Mike Prentis’ retirement is something that investors will be disappointed to hear of, however we don’t doubt that Roland will be able to fill his shoes. We particularly like the manager’s decision to concentrate the portfolio a touch from what was a very diversified portfolio, but without comprising their aim to provide a “reduced risk” approach.
At this moment in time the portfolio seems well positioned for the rather more uncertain environment, and perhaps this is reflected in the narrowing of the discount. Currently trading on only a 2% discount to NAV, it hardly represents a bargain. However over the long term, the company has rewarded investors with excellent performance ahead of peers and the benchmark and we see no reason why Roland will not be able to continue this track record.
|Strong long-term track record
||Highly experienced co-manager Mike Prentis is leaving the team
|Well positioned for the current volatile conditions
||The trust has narrowest discount in the sector
|Relatively low OCF