BlackRock Throgmorton Trust NAV returned 2.7% in June, outperforming its benchmark

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

All information is at 30 June 2021 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 2020 interim dividend declared on 23 July 2020 and paid on 26 August 2020, together with the 2020 final dividend declared on 10 February 2021 and paid on 1 April 2021.

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 0 shares held in treasury.

5. Calculated as a percentage of average net assets and using expenses, excluding performance fees and interest costs for the year ended 30 November 2020.

6. With effect from 1 August 2017 the base management fee was reduced from 0.70% to 0.35% of gross assets per annum.

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).

Market Exposure (Quarterly)

Ten Largest Investments

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

The Company returned 2.7% in June, outperforming its benchmark, the Numis Smaller Companies +AIM (excluding Investment Companies) Index, which fell -1.1%. The long book was the key driver of outperformance during the month though we did have a strong contribution from one of our individual short positions.

June was a strong month for the Company, particularly considering the nervousness and skittishness of the UK stock market. The immediate flattening of the yield curve post the recent FOMC (Federal Open Market Committee) meeting catalysed losses for many positioned for ongoing steepening and we saw a marked retracement in poor quality value and “recovery” shares that had been bid up in recent months. Meanwhile, June saw a resurgence in COVID-19 cases and global lockdowns, whilst M&A (Merger & Acquisitions) in the UK market remains very active.

As ever we have tried not to be too distracted by the macro news. Instead we have stuck to our process of identifying good opportunities in changing industries, and among structurally advantaged companies. In line with our message from last month we are seeing rapid and large industry change at present, which gives us some great opportunities and makes us optimistic about the outlook for the Company’s returns. This month was a great example as many long positions continued to deliver good results given their structural advantages and regardless of the changeable macro environment.

We’ve also seen further evidence of weaker companies delivering poor updates and downgrading expectations to this and outer years. Whilst the short book has been a headwind for a year now, there really are emerging signs that this could start to become a valuable source of alpha.  On this very point, we’ve been surprised at the volume of unattractive companies looking to IPO (Initial Public Offering) recently which we think is indicative of 1) stretched valuations in unattractive industries, and 2) a much more challenged earnings outlook going forward.  This will in turn lead to greater dispersion between winners and losers going forward as fundamentals reassert themselves as the driving force of alpha.

Looking at the largest contributors to performance, we saw strong share price moves from several our long holdings that have continued to deliver impressive updates. The largest contributor was DiscoverIE which rose after posting results ahead of expectations for FY21 and confirming a strong start to FY22 prompting upgrades to consensus forecasts. DiscoverIE has proved more resilient during the pandemic than expected but has also demonstrated a faster recovery subsequently. They start FY22 in a solid position with a record order book and an active M&A pipeline to pursue. The second largest contributor was Oxford Instruments which delivered very strong results in the period. This is a company that we’ve been busily adding to in recent months taking advantage of share price volatility despite the ongoing positive momentum in the underlying business. Liontrust Asset Management reported impressive growth in assets under management, benefiting from the structural growth/interest in sustainable investment strategies. The fourth largest contributor was in fact a short position in an indebted pharmaceuticals business that saw its fall sharply after the company issued a large profit warning.

The largest detractor during the month was our holding in Moonpig, which fell despite no stock specific information. Holiday operator Jet2 fell back on the longer COVID-19 restrictions and their decision to issue a convertible to strengthen their balance sheet to take market share in a recovery. The third largest detractor during the month was Vistry, which fell along with the broader housebuilding sector on the back of renewed concerns around the Delta variant and the potential impact on UK economic activity.

We invested in several new companies this month such as Baltic Classifieds Group, owner of locally dominant online advertising websites. The margins and growth prospects here are appealing as is the prospect of expansion through acquisitions. Meanwhile we met with, but rejected, many more companies this month that were showing good recent trading, but we feel are unlikely to deliver in future. We’ve also started introducing a few new single stock shorts into the portfolio recently reflecting our earlier comments on toughening trading conditions for some, particularly as markets normalise and taking advantage of their recent elevated (and unsustainable) valuation multiples.

Overall, June was a good month for the portfolio with plenty of industry change driving returns. We remain very positive on the opportunities that we are seeing. We now look forward to the corporate reporting season which will begin in earnest towards the end of July and into August. We will of course update shareholders on this in due course, but from our checks we believe that corporate earnings will continue to validate our research and this should support positioning on both the long and short sides of the book. As mentioned above we have seen plenty of opportunities and this is reflected on the long side with our net currently around 120%, however as stated above we are beginning to see opportunities to introduce new short positions to the portfolio. We thank shareholders for their ongoing support.

¹Source: BlackRock as at 30 June 2021

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