BlackRock Throgmorton Trust 08 December 2021

BlackRock Throgmorton Trust (THRG) invests in small and mid-sized UK companies that are either driving innovation or benefitting from structural change, with the primary aim of achieving capital growth. The portfolio manager, Dan Whitestone, firmly believes financially sound, well-managed companies with differentiated products that have a tailwind of secular trends are most likely to undergo exponential growth, and as discussed in Performance to date, this has translated into exceptionally strong and consistent returns for shareholders, both over the long and short term.

Uniquely in the AIC UK Smaller Companies peer group, THRG takes both long and short positions in stocks, betting against firms Dan believes are in a weak position. The short book provides a separate avenue for the manager to add value through stock selection skills. Additionally, the short book allows net exposure to the market to be reduced to smooth volatility in stressed market conditions. As discussed in Gearing, THRG can have a net exposure between 70% and 130% of NAV but typically operates in a range between 100 and 115% of NAV. The current gearing of 120.9% (as at 30/09/2021) indicates the bullish outlook Dan has for his Portfolio, believing the pandemic has accelerated the pre-existing trends his companies were benefitting from.

THRG’s exceptional performance has created strong investor demand such that the trust has been trading at a premium for a large part of 2020 and 2021, and as discussed in Discount the board has been active in issuing shares to address this issue. This has contributed to the growth in assets leading THRG to join the FTSE 250 Index in September 2021.

As discussed in Performance, THRG’s track record is outstanding. It is the best performing trust in the AIC UK Smaller Companies sector over five and ten years and second-best over three years on a NAV basis. The ability to go both long and short and gain effective leverage via CFDs has provided Dan and his team additional flexibility to add value via both stock picking and managing overall net exposure to the market. This has resulted in THRG’s excess returns not being overly driven by stylistic factors, despite high conviction in the quality-growth approach and the eschewal of highly cyclical sectors such as energy and mining. If an investor believes that trends in disruption, innovation and digitalisation will continue to drive stock performance and wants a focussed, undiluted Portfolio reflecting this view, then THRG may appeal.

We would note that the trust fee structure is heavily skewed towards performance fees rather than the fixed management fee. As discussed in Charges, although this remuneration structure has fallen out of favour with some boards, we believe it aligns the interests of shareholders and the manager and incentivises Dan and the team to continue to push to outperform. This means we expect Dan to continue to use high levels of gross market exposure, shorting and to maintain conviction in his particular approach, and this will mean THRG will not suit investors uncomfortable with any of these features.