BlackRock Throgmorton achieves another month outperforming its benchmark

BlackRock Throgmorton Trust plc (LON:THRG) has announced its portfolio update.

All information is at 30 September 2023 and unaudited.

To learn more about the BlackRock Throgmorton Trust plc please follow this link: blackrock.com/uk/thrg

Performance at month end is calculated on a cum income basis

Sources: BlackRock and Datastream

*With effect from 22 March 2018 the Numis Smaller Companies plus AIM (excluding Investment Companies) Index replaced the Numis Smaller Companies excluding AIM (excluding Investment Companies) Index as the Company’s benchmark. The performance of the indices have been blended to reflect this.

1. Calculated using the 2022 final dividend declared on 10 February 2023 and paid on 31 March 2023, together with the Interim Dividend declared on 07 July 2023 paid on 29 August 2023.

2. Includes current year revenue and excludes gross exposure through contracts for difference.

3. Long exposure less short exposure as a percentage of net asset value.

4. Excluding 5,570,267 shares held in treasury.

5. 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 performance fees, finance costs, direct transaction charges, VAT recovered, taxation and certain other non-recurring items for the year ended 30 November 2022.

6. With effect from 1 August 2017 the base management fee was reduced from 0.70% to 0.35% of gross assets per annum. 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, including performance fees, but excluding finance costs, direct transaction charges, VAT recovered, taxation and certain other non-recurring items for the year ended 30 November 2022.

7. Effective 1st December 2017 the annual performance fee is calculated using performance data on an annualised rolling two-year basis (previously, one year) and the maximum annual performance fee payable is effectively reduced to 0.90% of two year rolling average month end gross assets (from 1% of average annual gross assets over one year). Additionally, the Company now accrues this fee at a rate of 15% of outperformance (previously 10%). The maximum annual total management fees (comprising the base management fee of 0.35% and a potential performance fee of 0.90%) are therefore 1.25% of average month end gross assets on a two-year rolling basis (from 1.70% of average annual gross assets).

Commenting on the markets, Dan Whitestone, representing the Investment Manager noted:

The Company returned -0.5% in September, outperforming the Numis Smaller Companies plus AIM (excluding Investment Companies) benchmark which returned -1.6%.

September proved another challenging month to navigate with small & mid-caps in the UK continuing to underperform large caps (FTSE 250 Index -1.5% vs FTSE 100 Index 2.4%) amidst rising energy prices and surging bond yields. The “higher for longer” narrative gained momentum on the back of several US economic data points as well as hawkish comments from several Federal Open Market Committee (FOMC) members. On the ground, economic growth continues to show resilience, though there are emerging signs of weakness amidst the US consumer (decrease in excess savings, and a rise in US credit delinquencies for instance) which may in turn give the Federal Reserve pause for thought.

The biggest contributor was Ergomed which announced a recommended cash offer from the Private Equity firm, Permira, at a 28% premium to the previous day’s closing price. Whilst helpful to this month’s performance we will be disappointed to lose another one of our genuinely differentiated UK mid-cap growth companies. However, in our view Ergomed is another example of the inherent value within the broader UK mid-cap complex (and our long book!), where many predominantly international earners continue to grow, with strong balance sheets, yet trade on significant valuation discounts to their US listed peers. The second biggest contributor was Computacenter, which rallied after reporting better than expected numbers, delivering an impressive 24% year-on-year growth in organic revenues in H123 as they benefit from ongoing digital transformation programmes and market share gains. The third biggest contributor was Kier Group, which delivered FY23 results slightly ahead of consensus and announced their plans to return to paying a dividend, reflecting the strength of their cashflows and balance sheet. Considering the shares were trading on just over 4x this year’s earnings, they rallied strongly.

The largest detractor was CVS Group, which fell 25% on the news that the CMA (Competition and Markets Authority) are launching an inquiry into how “veterinary services are bought and sold amid concerns that pet owners may not be getting a good deal or receiving the information that need to make good choices”. Whilst we have spoken to Management at length and also have experience of CMA inquiries into other industries, due to the sensitivity of this we feel it imprudent to comment now. The second biggest detractor was YouGov, which fell sharply through the month reflecting a growing fear of an imminent profit warning. However, YouGov reported solid results in early October (post month end) and the shares subsequently rallied which will be captured in October’s performance. The third largest detractor was WH Smith which reported solid trading, however the shares fell back, perhaps on the lack of an upgrade to full-year guidance.

To recap, September was a difficult month, but we think another month finishing ahead of our benchmark is a creditable outcome. The last couple of months have certainly presented their challenges, but we continue to feel confident in the Company’s positioning, overall balance, and the increasing role that stock specifics are having. We retain the strong view that there are many significant mis-pricings in the market, and we continue to see lots of exciting opportunities. Despite our optimism in the prospects for holdings within the portfolio, we remind ourselves that the backdrop remains volatile, and this is reflected in the gross and net which remain around 116% and 108% respectively.

¹Source: BlackRock as at 30 September 2023

To learn more about the BlackRock Throgmorton Trust plc please follow this link: blackrock.com/uk/thrg