BlackRock Smaller Companies 24 November 2022
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.
To achieve long-term capital growth for shareholders through investment mainly in smaller UK-quoted companies.
Source: Morningstar, JPMorgan Cazenove
BlackRock Smaller Companies
Association of Investment Companies (AIC) Sector
UK Smaller Companies
Dividend Distribution Frequency
Latest Market Capitalisation
Latest Net Gearing (Cum Fair)
Latest Ongoing Charge Ex Perf Fee
(Discount)/ Premium (Cum Fair)
Daily Closing Price
BlackRock Smaller Companies (BRSC) is managed by Roland Arnold, who aims to identify high-quality UK smaller companies with superior growth prospects. As discussed in Portfolio, Roland has the freedom to invest in anything from AIM-listed stocks with market capitalisations of below £150m, all the way up to small/mid-cap stocks with a £2bn market cap. The resource availability at BlackRock and experience of the Emerging Companies team enhances the access to opportunities for Roland to exploit. The portfolio construction is unrestricted and stylistically-diversified with investments made dependent on Roland’s views on the fundamental strength of companies, which is reflected in the consistency of the trust’s Dividend growth over the past two decades.
As discussed in Performance, over the long term, BRSC has rewarded investors with consistent alpha generation over and above the benchmark, with the use of structural Gearing also enhancing the trust’s upside returns. However, over the shorter term, since the start of 2022, BRSC has not escaped the underperformance seen across the small-cap space. At the time of writing, this has led the trust to trade at a significant Discount of 11.8]%, which is significantly wider than its five-year average of 6.9%.
BRSC has a strong long-term track record, although the volatility that is associated with the small-cap markets has impacted Performance over the short term. We think Roland’s strategy of identifying high-quality companies that are cash generative with strong balance sheets and competitive advantage may be advantageous in an inflationary environment. However, as rising interest rates are a headwind for equities, and growth-focussed ones in particular, so more short-term volatility is a risk.
The high-beta strategy and use of structural Gearing has proven to impact performance on both the upside and the downside in recent years. However, the broad-based turmoil in the markets has contributed to a period of indiscriminate selling of growthier small and mid-cap companies which could provide long-term opportunities for stock-pickers. Roland’s ability to diversify into cyclical areas and across a broad spread of holdings should help reduce stock-specific and style-specific risk, even if market risk looks elevated. The current discount could prove to be an attractive entry opportunity for long-term investors, especially once fundamentals resume as the dominant driver of equity market returns.
- Consistent and clear investment process leads to reduced turnover and an opportunity to benefit from long-term company returns
- Long-term track record of dividend growth
- Attractive discount relative to historical average
- High-beta strategy increases potential for benchmark underperformance in volatile markets
- Consumer sector exposure may be impacted in a tightening economic environment
- Gearing intensifies and exaggerates upside and downside performance