REG-BlackRock Throg Tst: Portfolio Update

Blackrock Throgmorton TrustAnnouncement

24/10/2019 12:00

BLACKROCK THROGMORTON TRUST PLC
(LEI: 5493003B7ETS1JEDPF59)
 

All information is at 30 September 2019 and unaudited.
Performance at month end is calculated on a cum income basis

                      One     Three     One    Three     Five  
                    Month    months    year    years    years  
                         %         %       %        %        % 
 Net asset value       0.3       1.9    -0.1     51.0     99.4 
 Share price          -0.7       1.2     6.0     80.9    126.3 
 Benchmark*            1.5      -1.2    -7.3     13.0     34.9 

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.

 At month end                                                                  
 Net asset value capital only:                                         582.88p 
 Net asset value incl. income:                                         588.08p 
 Share price                                                           570.00p 
 Discount to cum income NAV                                               3.1% 
 Net yield (1):                                                           1.8% 
 Total Gross assets (2):                                               £430.1m 
 Net market exposure as a % of net asset value (3):                      98.5% 
 Ordinary shares in issue (4):                                      73,130,326 
 2018 ongoing charges (excluding performance fees) (5,6):                 0.6% 
 2018 ongoing charges ratio (including performance fees) (5,6,7):         1.3% 

1. Calculated using the 2019 interim dividend declared on 23 July 2019 and
paid on 28 August 2019, together with the 2018 final dividend declared on 12
February 2019 and paid on 28 March 2019.
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 7,400,000 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
2018.
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).

 Sector Weightings    % of Total Assets 
                                        
 Consumer Services                 28.1 
 Industrials                       22.8 
 Financials                        21.4 
 Consumer Goods                     8.3 
 Health Care                        6.6 
 Technology                         5.4 
 Telecommunications                 2.0 
 Basic Materials                    1.6 
                                        
 Oil & Gas                          0.5 
 Net current assets                 3.3 
                                  ----- 
 Total                            100.0 
                                  ===== 

   

 Market Exposure (Quarterly)                                 
                                                             
                  30.11.18   28.02.19   31.05.19   31.08.19  
                          %          %          %          % 
 Long                 103.7      108.7      113.7      109.1 
 Short                 10.5       14.9       13.2       11.2 
 Gross exposure       114.2      123.6      126.9      120.3 
 Net exposure          93.2       93.8      100.5       97.9 

   

 Ten Largest Investments                          
                                                  
 Company                  % of Total Gross Assets 
                                                  
 4imprint Group                               3.4 
 YouGov                                       2.8 
 IntegraFin                                   2.8 
 Workspace Group                              2.7 
 Dechra Pharmaceuticals                       2.6 
 SSP                                          2.6 
 Serco                                        2.6 
 Beazley                                      2.2 
 Bodycote                                     2.2 
 Aveva                                        2.2 

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

During September the Company’s NAV per share rose by 0.3%(1) to 588.08p on a
cum income basis, while our benchmark index, the Numis Smaller Companies plus
AIM (excluding Investment Companies) Index, rose by 1.5%(1). The long book
generated 0.8%(1) of gross performance while the short book lost -0.5%(1).

Despite equity markets rising, September was a volatile month, with a sharp
style rotation in market leadership away from growth and into value. Despite
this reversal being one of the most severe since our risk models began in
1995, our long book actually made a positive contribution to performance,
which we would attribute to positive stock specifics which continue to triumph
over broader market moves.

The largest contributor during the month was JD sports which delivered its
third upgrade this year and saw its shares rally strongly. Incredibly, this
differentiated retailer is still delivering high-single digit like-for-like
sales growth in-store in the UK. We highlight this because it goes to show
that differentiated businesses can perform, and one shouldn’t always believe
company statements about ‘weather’ and ‘weak macro’. JD Sports is now
up by +115% in 2019 and has been a strong driver of performance for our
portfolio, though we have taken advantage of an all-time high share price to
moderate our position size and lock in some of the gains. Workspace Group
rose, reversing some of the weakness seen last month as domestic shares
generally benefitted from the style rotation. 4imprint continued to make
gains, having reported solid results back in July.

The short book in aggregate modestly detracted during the month, however this
was more a cumulative effect from a number of our short positions in
challenged businesses with weak financial structures rallying with the broader
market, rather than anything stock specific. We therefore don’t believe this
represents a permanent loss of capital, as shares in poor businesses do not
become fundamentally attractive simply because they’ve recently been weak,
or because they optically look cheap on a price to adjusted earnings basis. 

Of the detractors during the month, many of these were companies that were
caught up in the style rotation away from growth shares, rather than share
price falls that were related to company specific newsflow. Dechra
Pharmaceuticals and YouGov, are two examples of shares that fell during the
month for no other reason than the fact that the shares have performed very
well recently. In both cases these businesses remain well positioned and on
track to continue to deliver material earnings growth over the long-term. The
largest detractor was stock specific however, and that was our position in SSP
Group, which fell in response to a trading statement which was generally
strong but also included a modest downward revision in forward like-for-like
sales estimates. We do not think this constitutes a structural change in the
investment case as new contract momentum is robust and the secular growth
backdrop of travel is as attractive to us as ever.

In summary, September was a challenging month for the portfolio, particularly
given the quantum of the reversal away from ‘growth’ and into ‘value’,
which created a significant headwind to our growth biased investment style. We
have experienced similar style reversals in the past, and as painful as they
are in the short term, what is most important is for us to determine whether
the financial markets are signalling a real impending problem to be revealed
in corporate earnings, or whether this is a short term technical dynamic. Our
view is the latter, but of course should this change we would act accordingly.
We believe this style reversal will prove transitory and, more importantly,
that the portfolio has had no material stock specific negative impact this
month where we believe there is a risk of a permanent loss of capital.
Performance year to date has been strong and we remain comfortably ahead our
benchmark, therefore during sharp technical reversals it is often those shares
that have performed well that are the first to suffer. Longer term we remain
confident in the outlook for the companies in our portfolio, many of these are
strong businesses with robust finances and innovative businesses that are
investing in digital transformation, disrupting existing profit pools and
taking market share from legacy incumbents. Given recent market volatility we
continue to operate with a diverse short book and a lower than average net
exposure to the market of 98.5%.

(1)Source: BlackRock as at 30 September 2019

24 October 2019

ENDS

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(ICV terminal).  Neither the contents of the Manager’s website nor the
contents of any website accessible from hyperlinks on the Manager’s website
(or any other website) is incorporated into, or forms part of, this
announcement.



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