BlackRock Smaller Companies Trust plc (LON:BRSC) has announced its latest portfolio update.
All information is at 31 December 2023 and unaudited.
To learn more about the BlackRock Smaller Companies Trust plc please follow this link: blackrock.com/uk/brsc
Performance at month end is calculated on a Total Return basis based on NAV per share with debt at fair value
| One month % | Three months % | One year % | Three years % | Five years % | |
| Net asset value | 8.3 | 6.5 | 0.8 | -4.5 | 31.0 |
| Share price | 5.7 | 11.4 | 5.2 | -14.4 | 29.9 |
| Numis ex Inv Companies + AIM Index | 8.5 | 6.9 | 3.2 | -3.3 | 24.0 |
Sources: BlackRock and Datastream
At month end
| Net asset value Capital only (debt at par value): | 1,468.79p |
| Net asset value Capital only (debt at fair value): | 1,514.77p |
| Net asset value incl. Income (debt at par value)1: | 1,491.33p |
| Net asset value incl. Income (debt at fair value)1: | 1,537.31p |
| Share price: | 1,382.00p |
| Discount to Cum Income NAV (debt at par value): | 7.3% |
| Discount to Cum Income NAV (debt at fair value): | 10.1% |
| Net yield2: | 2.9% |
| Gross assets3: | £788.4m |
| Gearing range as a % of net assets: | 0-15% |
| Net gearing including income (debt at par): | 7.6% |
| Ongoing charges ratio (actual)4: | 0.7% |
| Ordinary shares in issue5: | 48,202,292 |
- Includes net revenue of 22.54p
- Yield calculations are based on dividends announced in the last 12 months as at the date of release of this announcement and comprise the first interim dividend of 15.00 pence per share (announced on 26 October 2023, ex-dividend on 2 November 2023, and paid on 4 December 2023) and the final dividend of 25.50 pence per share (announced on 05 May 2023, ex-date on 18 May 2023, and paid 27 June 2023).
- Includes current year revenue.
- The Company’s ongoing charges are calculated as a percentage of average daily net assets and using the management fee and all other operating expenses excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation and certain non-recurring items for year ended 28 February 2023.
- Excludes 1,791,231 ordinary shares held in treasury.
| Ten Largest Equity Investments Company | % of portfolio |
| Gamma Communications | 2.5 |
| Workspace Group | 2.3 |
| Hill & Smith | 2.2 |
| Chemring Group | 2.1 |
| 4imprint Group | 2.1 |
| CVS Group | 2.1 |
| YouGov | 2.1 |
| Watches of Switzerland | 1.9 |
| Bloomsbury Publishing | 1.9 |
| Breedon | 1.9 |
Commenting on the markets, Roland Arnold, representing the Investment Manager noted:
During December the Company’s NAV per share rose by 8.3% to 1,537.31p on a total return basis, while our benchmark index returned 8.5%. For comparison the large cap FTSE 100 Index lagged small & mid-caps for a second consecutive month, returning 3.9%.
December proved to be a strong end to 2023, with equity markets reacting to continued falls in inflation, further normalisation in the jobs market, and the narrative of central bank pivots. This resulted in further decline in US 10-year treasury rate from 4.95% to 3.88% in one month, and a broad rally for equity markets. In the US the Federal Reserve (Fed), in its last meeting of the year, sent a signal that it would begin cutting interest rates in 2024. Although the US payrolls data in November painted a picture of a labour market gradually cooling, wage growth was still too high to be consistent with inflation falling back to the Fed’s 2% policy target and the unemployment rate ticked lower. In addition, though the US Consumer Price Index (CPI) for November largely matched expectations, it showed that core services inflation was proving to be sticky. The European Central Bank (ECB) and the Bank of England (BOE) signalled that interest rate cuts remained some way off. In Europe, policymakers stuck to the script of policy being set at sufficiently restrictive levels for as long as necessary. In the UK, inflation plummeted to a two-year low of 3.9%, markets predicted BOE interest rate cuts in 2024.
The attractive valuations of UK companies continued to catch the eyes of strategic buyers through December, with bowling alley operator Ten Entertainment being the latest target. The company soared after receiving a bid from US private equity group, Trive Capital. Similarly, our holding in GlobalData caught the attention of private equity group, Inflexion, which is acquiring a 40% stake in GlobalData’s Healthcare operation. The deal will net the company £434m, which will be used to fund further acquisitions. Shares in IntegraFin, operator of the UK investment platform Transact, rose in response to solid full year results, demonstrating the strength of its platform and ability to take market share against a challenging backdrop.
The strength of the market rally during December created a headwind to performance, with a number of the largest detractors to performance coming from shares in the benchmark that we do not own that outperformed; Paragon, Carnival and Smart Metering Systems, were all up between 25%-45%. While there will always be periods where shares that we don’t own (rightly or wrongly) rally, it is particularly frustrating when the largest three relative detractors fall into this bucket. Shares in digital payments business Boku, underperformed the market during December. There was no negative news flow that impacted the shares, and post month end the shares have rebounded.
Since the end of 2021 rising interest rates have been weighing on the valuations of long-duration, higher growth shares in the stock market. As a result, UK small & mid-caps have continued to underperform large caps and we are now in the deepest and longest cycle of underperformance in recent history; worse than the Global Financial Crisis, COVID, Brexit, Tech sell-off or Black Monday. The fourth quarter of 2023 saw markets reflect the expectation of rate cuts in 2024 in response to easing inflation data. However, as we have entered 2024, the backup in bond yields has led to a volatile start to the year in equity markets.
Against this backdrop, the question remains, what is the catalysts for this trend to change? Unfortunately, there is no simple answer. While there are many headwinds to the UK SMID market; economic uncertainty, political uncertainty, the structural flow issues in the UK market, the risk of more pervasive inflation, to name a few, we remind ourselves and take comfort in the fact that many of our holdings continue to deliver against their objectives. Furthermore, we believe we are closer to the end of monetary tightening and at some point, we are confident that investors will decide the balance of probabilities is in favour of the opportunities, that the risks are more than adequately priced in, and that an increased allocation to UK Small and Midcaps is warranted.
As ever, we remain focused on the micro, industry level change and stock specific analysis and the opportunities we are seeing today in our universe are as exciting as ever. Historically, periods of heightened volatility have been followed by strong returns for the strategy and presented excellent investment opportunities.
We thank shareholders for your ongoing support.
1Source: BlackRock as at 31 December 2023
To learn more about the BlackRock Smaller Companies Trust plc please follow this link: blackrock.com/uk/brsc
