BlackRock Throgmorton in line with expectations defying the macro doom and gloom

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

All information is at 30 June 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 interim dividend declared on 20 July 2022 and paid on 26 August 2022, together with the 2022 final dividend declared on 10 February 2023 and paid on 31 March 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 3,064,079 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 -1.0% in June, which was in line with the Numis Smaller Companies +AIM (excluding Investment Companies) benchmark which also returned -1.0%.¹

Global markets were strong overall in June, with the FTSE 100 Index up by 1.4%, MSCI ACWI +5.8%, led by the US with the S&P 500 up 6.5% on the back of some stronger US macro data points. Frustratingly however, the FTSE 250 Index was once again the outlier and was down 1.3%. Poor UK inflation data (food and travel related) and its subsequent impact on the UK interest rate outlook led to pronounced weakness in the UK mid-cap and domestically oriented shares. Despite this headwind to performance, the portfolio performed in-line with our benchmark thanks to solid trading within the long book across a broad range of companies that continue to defy the macro doom and gloom.

Games Workshop has continued to grow revenues and profits ahead of expectations with sales and profits considerably higher than those achieved during the work-from-home era. In a year of limited new product launches and rising costs, the strength of these results should not be underestimated. The recent news of a potential deal with Amazon (specific details still unknown) to develop a TV series should create a significant positive halo effect on marketing for the brand, in addition to the cashflow benefit from licensing. Herc Holdings was a beneficiary of stronger US macro data as fears of a hard landing receded. We have written before about our view that the current industry dynamics in US equipment rental are strongly favouring the largest players in the industry (Herc, United Rentals and Ashtead, all of which we own across the Emerging Companies team). The underlying secular story is the continued transition from contractors owning construction equipment to renting it. On top of this is overlaid strong demand trends coming from “megaprojects” which have been driven by the twin tailwinds of re-shoring and the Inflation Reduction Act. Mega projects favour the larger players as they were able to continue to invest through the last 2 years and secure supply of new equipment from OEMs (original equipment manufacturers) and as a result they have a much better invested fleet than smaller regional competitors, while their national scale leaves them best placed to pick up the most work. Despite recent moves and the positive outlook for the industry Herc Holdings still only trades on 9x PE (price to earnings ratio). Shares in Alfa Financial Software rose on the back of the announced bid, which has subsequently been withdrawn, from private equity business EQT.

Of the largest three detractors to relative performance during the month, two were shares that we do not own which rose strongly during the month, Carnival and Aston Martin. Watches of Switzerland was the biggest detractor as the shares continued to fall, caught up in the general drawdown in UK mid-cap shares following June’s inflation data. We continue to be surprised by the extent of derating in what we consider to be a best-in-class route to market in a structurally attractive category. The shares now trade on 11x its current year’s earnings, with a net cash balance sheet. We continue to think the long-term opportunity here is deeply mispriced so retain a holding. Another detractor was Impax Asset Management which fell following a statement highlighting weaker than expected inflows into its core ESG strategies.

Despite weaker UK macro data in the month, we remain optimistic about the prospects for the portfolio. The environment still feels somewhat febrile, with heightened volatility both across markets and within market leadership. Staying on top of these gyrations and their implications for markets and, more importantly, the companies in the Trust, has been hard work but we continue to see attractive opportunities and areas of significant mispricing within the market, and this gives us confidence for future returns. We are now into the second half of the Company’s financial year; the portfolio is +2.4%, ahead of the benchmark despite 1) an ongoing challenging macroeconomic backdrop, and 2) having the continued headwind of mid-cap underperformance in the UK. We continue to see myriad compelling opportunities within the UK mid-cap complex in particular, therefore we remain confident in the return potential of the Company. The net of the Company crept down slightly over the month to c.105%, while the gross is c.113%.

¹Source: BlackRock as at 30 June 2023

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