Fund Profile

BlackRock Smaller Companies 31 July 2023

Disclaimer

This is a non-independent marketing communication commissioned by BlackRock. 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 Trust (LON:BRSC) offers investors an exposure to long-term growth opportunities through a strategy that is focussed on high-quality UK smaller companies. The same team have been responsible for BRSC for nearly 20 years, employing an investment process that has remained largely unchanged over this period. The team apply a disciplined approach, with target weights for stocks that are managed around price movements, whilst managing portfolio risks through diversification. As we discuss in the Portfolio section, the highest-conviction ideas make up 75% of the portfolio, but with the top ten holdings only representing c. 22%, specific risks are relatively low.

Despite a strong long-term track record, generating alpha has been challenging during 2022, as we highlight in the Performance section. Small-cap investing is always inherently volatile. But looking back at history, blips in performance tend to be short-lived, thanks to smaller companies’ ability to deliver superior earnings growth, which Roland believes is a key driver of share price returns over the long term. For high-quality, operationally strong companies, Roland believes the current time represents an attractive investment environment, given the relative attractiveness of valuations in the small and mid-cap UK equity markets.

Roland’s investment approach is focussed on identifying high-quality, cash-generative businesses that can often return excess cash to shareholders. This enables BRSC to provide a differentiated source of income, alongside the trust’s core mandate of achieving long-term capital growth. Indeed, the strong underlying growth in dividends from portfolio companies over the years has enabled BRSC’s dividends to be increased for 20 consecutive years, meaning it now qualifies as one of the AIC’s ‘dividend heroes’. The annualised increase in dividends paid over this 20-year period equates to 11.2% per annum.

BRSC’s latest OCF is 0.7%, making it one of the lowest-cost trusts within the AIC UK Smaller Companies sector.

Analyst's View

In our view, the continuity and consistency of BRSC’s investment process (see Portfolio) has been a significant contributor to the trust’s ability to deliver strong performance for investors over the long term, having generated an annualised total return of 9.1% over the past ten years. Over the past five years, BRSC has generated a NAV total return of 5.3%, outperforming the benchmark’s return of 1%, but underperforming the peer group average over the same period.

As we discuss in the Performance section, BRSC’s recent underperformance has followed a prolonged period of outperformance and comes at a time of elevated volatility. In our analysis, BRSC’s relatively high performance and consistency scores show that investors have been generally rewarded for taking on the additional risk of the strategy. Roland’s focus on identifying high-quality businesses, together with his patience to remain invested over the long term, has translated into positive alpha relative to the benchmark and peers.

BRSC has a current yield of 3.1%, which is the second-highest in the sector. BRSC has significant revenue reserves, which the board can use in support of the dividend, thus providing a degree of reassurance. At the time of writing, BRSC trades at a 13.3% discount to NAV, which is slightly narrower than the AIC UK Smaller Companies sector average of 14.5%, according to JPMorgan Cazenove, as at 23/05/2023. As the second-largest trust in the AIC UK Smaller Companies sector, BRSC benefits from good liquidity in its shares. In light of this, the rigorous and consistent investment process and strong long-term track record, not to mention the trust’s low charges, we believe that the current discount level may present an attractive entry opportunity for longer-term investors.

Bull

  • Strong long-term performance track record
  • 20 consecutive years of dividend growth, leading to a relatively attractive yield
  • Discount wider than long-term average may present an attractive entry point for investors

Bear

  • May underperform during value-driven market environments
  • Smaller-company investing typically exhibits higher levels of volatility
  • Gearing can exacerbate losses on the downside
Continue to Portfolio

Fund History

11 Jun 2024 Catching the wave
Why the early bird investors in the UK small-cap sector have historically been well-rewarded…
07 Jun 2024 Investing in UK small-caps with investment trusts
Investment trusts provide a simple way for investors to add exposure to the high-growth UK small-cap sector…
17 May 2024 BlackRock Smaller Companies Trust plc: A Look Ahead for 2024
Investors have been waiting for green shoots from UK smaller companies for much of the past two years. Rising interest rates, higher inflation and economic uncertainty have conspired to suppress any revival. The sector has been through the deepest and longest period of underperformance in over 40 years...
15 May 2024 Results analysis: BlackRock Smaller Companies
BRSC has outperformed the index in a challenging period…
30 Apr 2024 Fund Analysis
A focus on fundamentals may act as a catalyst for BRSC to bounce back…
29 Apr 2024 Investing in UK small-caps with BlackRock Smaller Companies - Podcast: Trust Issues #29
We discuss what BRSC offers investors looking for exposure to UK small-caps...
20 Mar 2024 Don’t stop believing
Why the UK small-cap sector is ready to shake off its shackles after a tough few years…
09 Feb 2024 Protecting against the unknown
Accepting that prediction making is flawed makes life easier for investors…
16 Nov 2023 BlackRock Smaller Companies - Bull vs Bear
In this inaugural episode of Bull vs Bear, we look at BlackRock Smaller Companies (BRSC)...
03 Nov 2023 We already know
A gloomy outlook for the UK economy is hardly novel information…
27 Oct 2023 What else?
Some trusts still offer attractive return potential, without the high valuations the US offers...
31 Jul 2023 Fund Analysis
BRSC is a newly minted ‘dividend hero’…
14 Jun 2023 Let's go round again?
Discounts have ballooned across the investment trust world, but our analysis shows we've been here before...
16 May 2023 Results analysis: BlackRock Smaller Companies
BRSC’s historically wide discount may offer an attractive entry point for long term investors…
05 May 2023 Don’t ignore smaller companies for income
While the UK market is a good hunting ground for income-seekers, that income is often concentrated in a handful of stocks and sectors. “A small cap allocation can help to diversify this, and the investment trust structure has unique features that makes it attractive to income seekers” says Roland Arnold on the BlackRock Smaller Companies Trust...
30 Mar 2023 Going against the grain
BRSC’s discount and recent performance could mean there’s room for cautious optimism…
18 Jan 2023 Fortune favours the brave
Our research suggests a recession has already been priced into small cap trusts, but risks abound...
24 Nov 2022 Fund Analysis
BRSC’s wide discount and lower portfolio valuations may offer an attractive entry opportunity for long-term investors...
24 Nov 2022 Slides and Audio: BlackRock Smaller Companies
Download the presentation and listen to the audio from our webinar from 15 November...
02 Sep 2022 The small cap advantage
Smaller companies have shown their mettle through the pandemic. This is no accident, says Roland Arnold, portfolio manager of the BlackRock Smaller Companies Trust plc, these are dynamic and nimble businesses, that use capital effectively to drive innovation and deliver sustainable long-term growth...
10 Aug 2022 Get ‘em while they’re hot
Wide discounts in the UK Smaller Companies sector may present long term investors with good entry opportunities…
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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