BlackRock Throgmorton Trust outperforms benchmark, NAV return of 7.6% in May

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

All information is at 31 May 2024 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 Deutsche Numis

*With effect from 15 January 2024 the Numis Smaller Companies plus AIM (excluding Investment Companies) Index changed to the Deutsche Numis Smaller Companies plus AIM (excluding Investment Companies).

1. Calculated using the Interim Dividend declared on 07 July 2023 paid on 29 August 2023, together with the Final Dividend declared on 05 February 2024 paid on 28 March 2024

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 11,602,937 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 2023.

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 2023.

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 7.6% in May, outperforming its benchmark the Deutsche Numis Smaller Companies + AIM (excluding Investment Companies) Index, which returned 6.4%.¹

Despite a bout of volatility in the last few days of May, it was a strong month for risk assets broadly, with most developed markets delivering a positive return. As for the macro, May did see some softer global growth data points while US and UK inflation prints revealed ongoing falls albeit perhaps not at the rate hoped for, with Services still a laggard. On the UK specifically, the economic backdrop is steadily improving; growth is up, inflation is falling, and consumer confidence is rising alongside real wage growth (ASDA Income tracker is now at 3-year high). We think the news of a snap election in the UK is a positive overall as it removes a prolonged period of uncertainty and could indeed herald a period of political stability (just reflect on how many cabinet posts have changed in recent years) with drives investment. Combine this with an improving backdrop and potential for rate cuts we think the UK recovery is only in the foothills and the valuation anomaly extreme. M&A activity in the UK remains high, highlighting the value on offer. Interestingly, the UK small and mid-caps saw the first monthly net inflow after 35 consecutive months of outflows! Maybe an anomaly, maybe the start of a trend? As ever, there was lots going on at the company level, and this was a month of lots of stock specific developments, both positive and negative, though thankfully we got more of the former than the latter.

The largest contributor during the month was from Zotefoams, which rallied sharply in response to a positive trading statement. The company reported positive growth across a number of its High-Performance Products (HPP) including footwear, aviation and insultation products, while also updating investors on its ReZorce mono-material barrier packaging product, which is currently entering late-stage quality and technical validation in preparation for market trials with a European retailer. IntegraFin, the operator of the Transact investment platform, reported a 13% year-on-year increase in funds under direction, which rose to £61bn as at the end of March 2024. Net inflows onto the platform rose by 4% during the year, with advisors using the platform also growing at the same rate to 7,900. Bathroom retailer Victorian Plumbing shares rose on the announced acquisition of an online competitor which should be significantly accretive to earnings. 

Elevated levels of M&A activity remained an ongoing feature in the UK small and mid-cap market, but remains a double edged sword. Do we own the companies that are bid for, thereby generating a fillip to short-term performance, and if so, is the price commensurate with the long-term value we think they are capable of generating? As for May, we saw a large cash bid (+70% premium) for a company we don’t own – Keywords Studios – itself a large constituent of the benchmark so that was the biggest drag on relative performance in the month (costing around 38bps). Consumer electronics business, TT Electronics, fell after reporting ongoing destocking in its shorter-cycle components products in North America. Management felt confident enough to reiterate their full year guidance but it will be more H2 weighted than previously thought. However, overall, the book-to-bill ratio has moved above 1x for the first time in over 12 months, with Q124 orders sequentially higher than Q423 and comps ease through the year. The shares trade on just over 7x current year earnings, so one might think quite a lot of negativity is already priced in. Shares in travel operator Jet2 drifted lower during the month despite no stock specific news flow.

Overall, a lot to contend with in May. Indeed, there are many stocks worth talking to clients about this month, both good and bad. As discussed earlier, we think the outlook for the UK is improving, share buy backs and M&A activity continue to provide a valuation underpin, so H2 2024 could be exciting with an election out the way, improving macro and sentiment and maybe even an improving flow backdrop. We remain reassured with the breadth of returns in the portfolio, with positive contributions across a broad spread of businesses both this month and year to date. We are also reassured that the returns are primarily driven by stock specifics rather than any one factor or macro bet. The net of the portfolio is around 110% while the gross is around 115%.

We thank shareholders for your ongoing support.

¹Source: BlackRock as at 31 May 2024

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