Fund Profile

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by BlackRock Smaller Companies. 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.

Overview
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Overview

BlackRock Smaller Companies (BRSC) aims for long-term capital growth through investment in UK small-cap or AIM-listed companies. The manager, Roland Arnold, seeks to identify high-quality companies with strong growth prospects.

As we discuss under Performance, BRSC has generated consistently strong returns in recent years, consistently outperforming and generating positive risk-adjusted returns (as measured by the information ratio). Whilst much of 2020 proved relatively challenging, the trust still ended up outperforming over the calendar year and has achieved nearly double the average NAV total returns of the peer group average over the previous five years.

Roland looks to ensure his companies meet five key criteria, as discussed under Portfolio. These primarily centre on quality and growth considerations, the two often being symbiotic (Roland believes quality of management, for example, is key in driving business growth). The result is a portfolio of typically c. 120 stocks which Roland believes offer strong growth potential.

The investment strategy is focussed on capital growth, however the trust also has a strong dividend record, with ten-year annualised dividend growth of c. 18.2% p.a. As we note under Dividend, this has been reflective of near-equally strong growth in revenue returns achieved. BRSC currently yields c. 1.9%.

BRSC currently trades on a discount to NAV of c. 6.1% (as at 04/02/2021), having rapidly narrowed towards the end of 2020. As we discuss under Discount, it was not surprising to us that the discount should narrow rapidly on a more positive market attitude towards UK equities, given BRSC is amongst the largest trusts in the UK small cap sector with liquid shares and a highly diversified shareholder register.

Analyst's View

BRSC has demonstrated outstanding performance over a number of years. Although 2020 proved more challenging in the most part, a recovery in absolute and relative performance ensued. Past performance is obviously no guarantor of future returns; however, we can observe an internal risk process which seeks to isolate and maximise the contribution to relative returns of stock specific factors. This gives us confidence previous outperformance has been a consequence of stock selection, and not exogenous, variable macro or style factors. A depth in analytical resources and significant experience, in a universe of thinly researched stocks, offers the potential for identifying underappreciated stock opportunities. Rallies in commodities may pose some headwinds relative to the benchmark but this is true for essentially all active UK small-cap strategies, and Roland’s management of sector risk, we believe, can reduce any headwinds this may pose.

Allied to a strong growth profile BRSC has a history of strong dividend growth. Whilst drawing down revenue reserves has been necessary to maintain dividends this financial year, we are in some ways oddly reassured by the implications of this. BRSC targets growth opportunities; given the economic environment, we believe there are likely to be better long-term uses of excess cash flow for small companies at this time than returning it to shareholders via dividends, such as capex or M&A. A reduction in dividends received would suggest to us that BRSC’s philosophy is very much reflected in the current portfolio.

BULL BEAR
Strong, consistent track record of absolute and relative performance, and risk-adjusted returns
A sharp commodity rally could prove headwind to returns relative to benchmark
Stock picking appears the main driver of relative returns
Gearing can exacerbate downside, as well as amplify upside
Board has proven supportive on progressive dividend policy
Little to no discount opportunity currently
Continue to Portfolio

Fund History

12 May 2022 Going against the grain
Overzealous selling may provide opportunities for investors happy to take on the risk…
11 May 2022 Results analysis: BlackRock Smaller Companies
BRSC’s wide discount may provide an attractive entry point for investors…
05 Apr 2022 Fund Analysis
BRSC’s wide discount could prove a lucrative long-term entry point…
30 Dec 2021 Great expectations
As the last of the mince pies wilts in the fridge, topped with a generous helping of stilton, the Kepler Trust Intelligence team stick a finger in the air and point toward their top picks for the year ahead…
01 Dec 2021 Smaller companies: finding the best
Roland Arnold, Portfolio Manager of the BlackRock Smaller Companies Trust plc, explains how he uncovers companies that could grow their earnings for the long term.
29 Sep 2021 Fund Analysis
BRSC has a strong track record of consistent outperformance...
18 May 2021 Results analysis: BlackRock Smaller Companies
BRSC continues to forge a solid long-term track record despite a challenging year…
10 Feb 2021 Fund Analysis
BRSC has a strong track record of consistent outperformance...
10 Feb 2021 Eye of the Pfizer
Mining shares have rallied in recent months. With further potential, what impact could this have on the relative returns of active UK Small cap strategies...
17 Sep 2020 Five small cap trusts on very wide discounts
The UK Smaller Companies Sector is battered and bruised, but bombed out valuations among trusts in the sector look interesting...
05 Jun 2020 Deep impact
Audio and presentations from our conference this week, where fifteen of the world's best fund managers described a profoundly altered investment landscape...
22 May 2020 Fund Analysis
BRSC has one of the strongest track records in the UK Smaller Companies universe, consistently outperforming the benchmark in rising and falling markets…
13 May 2020 Braving the new world
Join 15 of the UK's best known fund managers at the Kepler Trust Intelligence Virtual Summit to find out how they see the world after the pandemic...
06 May 2020 The fight in the dog
We look at the characteristics which have separated the winners from the losers among small-cap trusts in the current crisis, with some surprising results...
27 Dec 2019 Fund Analysis
BRSC is well positioned for uncertain conditions with strong diversification across sectors and geographies…
04 Dec 2019 Small wonders: income from the UK's most exciting companies
Smaller companies have typically been employed to add a little spice to a portfolio, to generate some growth alongside their stodgier blue-chip cousins. But they can play plenty of other roles, including as a solution for income.
12 Jun 2019 Fund Analysis
BlackRock Smaller Companies is a well-run company, with a long-term track record of strong performance...
25 Oct 2017 Patience is a virtue…
We analyse the outperformance of UK small-caps and why it has been so important to take a long-term view...
05 Jul 2017 IPOs: Be selective
The small-cap team at BlackRock explains its strategy to investing in newly-listed companies and the risks surrounding them...
27 Jun 2017 What's driving frontier markets?
Can political and economic reforms make a difference when it comes to looking for growth?
15 Jun 2017 Signs of continental shift
BlackRock's Stefan Gries explains what's driving opportunities in Greater Europe...
12 Jun 2017 MAYDAY!
As the Conservative party founders, we examine the impact of last week’s disastrous election on trusts...
08 Jun 2017 The long game
Highlights from BlackRock Income & Growth's annual general meeting...
07 Jun 2017 Omnishambles...
Given the huge levels of political-induced uncertainty, we analyse recent drivers and themes within the UK equity market ahead of the upcoming election
05 Jun 2017 Emerging Opportunities
BlackRock's Chris Colunga discusses the advantages of emerging European countries...
25 May 2017 An opportunity in UK small-caps?
We round up recent recommendations, results and analysis of the latest developments in the UK small-cap sector...
04 May 2017 Size matters
We highlight the potential liquidity and capacity constraints that could hinder open-ended UK smaller companies funds...
29 Mar 2017 Good things come in small packages...
Mike Prentis, BlackRock’s portfolio manager for smaller companies, explains his rationale for picking companies...
15 Mar 2017 Never mind the ballots
Despite political uncertainty in Europe, the continent remains home to some of the world's strongest brands and companies...
10 Mar 2017 The long and short of it
BlackRock's Dan Whitestone explains how 'shorting' a company can make money for investors on a falling share price...
25 Jan 2017 Frontier markets can give you the edge…
Gordon Fraser, portfolio manager for frontier markets at BlackRock, highlights everything investors need to know about high growth frontier markets...
06 Jan 2017 Confidence returns to commodities
Tom Holl, co-manager of BlackRock’s Commodities Income Investment Trust, discusses the future for this diverse sector...
19 Dec 2016 Salvation for Latin America?
BlackRock’s portfolio manager for Latin America, Will Landers, assesses the region’s potential for growth....
26 Oct 2016 Fund Analysis
A UK focused trust which implements a bottom-up investment process targeting ‘high quality’ companies which offer strong growth potential.
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