BlackRock Throgmorton Trust 04 November 2022
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.
BlackRock Throgmorton Trust (THRG) has historically generated some of the best returns in the AIC UK Smaller Companies sector. Manager Dan Whitestone seeks to identify the highest-quality growth companies in the UK small-cap market, meaning companies which have a long runway of fundamental growth ahead of them as sector leaders or industry disruptors, or which have innovative ways to capitalise on secular growth opportunities. Dan can take long or short positions in contracts for difference (CFDs) to supplement the shares he owns. He will take short positions when he feels that a company is likely to underperform, though this typically forms a small part of the portfolio (see Gearing).
Over the long term, THRG has demonstrated significant outperformance against both its peers and benchmark. However, the market environment over 2022 has been difficult for many growth managers, as we discuss under Performance. Yet Dan tells us the underlying fundamentals of his holdings have shown little to no sign of deteriorating, with the investment cases for almost all of his portfolio having remained unchanged, despite the sell-off. Dan has reduced his net market exposure, though, recognising the current economic challenges and the increased levels of market volatility that this can bring, in order to protect shareholder capital. This puts Dan in a stronger position to be able to deploy capital swiftly when he believes the time is right. THRG trades on a 1.7% Discount at the time of writing.
THRG has a highly impressive long-term track record built on identifying companies which demonstrate disruptive business models or capitalise on structural growth themes. We think this is an attractive long-term strategy to take in the small and mid-cap market, which is bound to throw up such companies. In the short term, investing for growth has suffered due to macroeconomic conditions, specifically rising interest rates and growing risk aversion due to fears of a recession. We think the indiscriminate sell-off could represent an opportunity for Dan, and also for potential long-term investors in THRG who can bear short-term volatility and uncertainty.
We note that THRG’s performance fee serves to align the interests of shareholders and manager and incentivises Dan and the team to continue to push to outperform, which should benefit long-term shareholders. A cap and a clawback mechanism serve to address some of the most common criticisms of performance fees.
Bull
- Has demonstrated strong outperformance versus peers and benchmark over the long run
- Discount may offer attractive entry point
- Is the only strategy in its peer group to benefit from short positions
Bear
Growth investing can underperform during periods of rising interest rates
Gearing can amplify losses on the downside
Offers lower diversification benefits relative to peers
Fund History
