REG-BlackRock Throg Tst: Portfolio Update

Blackrock Throgmorton TrustAnnouncement

26/07/2022 10:30

The information contained in this release was correct as at 30 June 2022. 
Information on the Company’s up to date net asset values can be found on the
London Stock Exchange Website at:

https://www.londonstockexchange.com/exchange/news/market-news/market-news-home.html. 

BLACKROCK THROGMORTON TRUST PLC (LEI: 5493003B7ETS1JEDPF59)
 

All information is at 30 June2022 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     -11.9     -21.0   -33.9      6.6     27.1 
 Share price         -14.0     -27.6   -40.3      0.6     39.2 
 Benchmark*           -9.4     -12.3   -19.0     10.1      9.7 

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:                                          584.22p 
 Net asset value incl. income:                                          592.34p 
 Share price                                                            546.00p 
 Discount to cum income NAV                                                7.8% 
 Net yield (1):                                                            1.9% 
 Total Gross assets (2):                                                £605.3m 
 Net market exposure as a % of net asset value (3):                       98.7% 
 Ordinary shares in issue (4):                                      102,186,194 
 2021 ongoing charges (excluding performance fees) (5,6):                 0.57% 
 2021 ongoing charges ratio (including performance fees) (5,6,7):         1.38% 

1. Calculated using the 2021 interim dividend declared on 26 July 2021 and
paid on 27 August 2021, together with the 2021 final dividend declared on 07
February 2022 and paid on 31 March 2022.

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 1,023,670 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
2021.

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 
                                            
 Industrials                           27.7 
 Consumer Discretionary                21.3 
 Financials                            13.6 
 Health Care                            7.3 
 Technology                             6.9 
 Consumer Staples                       4.0 
 Telecommunications                     3.2 
 Basic Materials                        1.5 
 Energy                                 0.8 
 Net Current Assets                    13.7 
                                      ----- 
 Total                                100.0 
                                      ===== 
                                            
 Country Weightings       % of Total Assets 
                                            
 United Kingdom                        92.7 
 United States                          5.0 
 France                                 1.8 
 Australia                              0.7 
 Germany                               -0.2 
                                            
                                      ----- 
 Total                                100.0 
                                      ===== 

   

 Market Exposure (Quarterly)                                 
                                                             
                  31.08.21   30.11.21   28.02.22   31.05.22  
                          %          %          %          % 
 Long                 119.4      121.3      121.8      104.8 
 Short                  2.4        2.7        2.3        3.3 
 Gross exposure       121.8      123.9      124.1      108.1 
 Net exposure         117.0      118.6      119.5      101.5 

   

 Ten Largest Investments                            
                                                    
 Company                    % of Total Gross Assets 
                                                    
 Electrocomponents                              3.3 
 Gamma Communications                           3.2 
 CVS Group                                      3.2 
 Auction Technology Group                       2.9 
 Watches of Switzerland                         2.9 
 Oxford Instruments                             2.7 
 WH Smith                                       2.5 
 Dechra Pharmaceuticals                         2.5 
 Computacenter                                  2.4 
 Ergomed                                        2.1 

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

The Company returned -11.9% during June, underperforming the Numis Smaller
Companies plus AIM (excluding Investment Trusts) benchmark which returned
-9.4%. 

June was a particularly poor month for equity markets, particularly the UK
small & mid-cap market as concerns of a global recession magnified. Recent
actions including reducing the gross and net helped protect against further
relative underperformance, but importantly the mix of the market also played
its part, with our short book delivering a positive return as over indebted
companies with weak margin structures fell hard in addition to economically
sensitive cyclicals. In contrast, companies with strong financial profiles
fared better, also helping the portfolio on a relative basis.

As has been the case for most of 2022, UK small & mid-caps continued to suffer
disproportionately during the month, particularly those exposed to the
consumer. A case in point would be the biggest detractor, Watches of
Switzerland, which continued to fall despite a strong update (with upgrades)
in late May and so now trades on 13.5x p/e (price to earnings ratio) for its
current financial year and has a very healthy balance sheet and in our view a
large runway of further growth (organic and inorganic) in a supply constrained
industry. Shares in Impax Asset Management weakened as the challenging market
environment has seen their assets under management fall despite the business
continuing to see net inflows, albeit at a slightly slower pace and digital
marketing firm, YouGov, also fell during the month.

On the positive side, many of the largest positive contributors to performance
were simply shares that we do not own that underperformed the falling market.
Some of our more defensive holdings outperformed during the month, for example
Alliance Pharma and Spirent Communications. The portfolio also benefited from
a short position in a challenged UK semiconductor technology business which
has continued to struggle since IPO (Initial Public Offering).

On the whole, negative news-flow in the UK continues to be quite isolated to a
few specific areas linked to consumer spending in big ticket items, or within
undifferentiated apparel retailing particularly within e-commerce where a
combination of a change in customer behaviour (online back to store),
increased returns, and too much inventory are leading to significantly
negative operational leverage as demand softens. Generally, our long book
continues to trade well so the weakness is more de-rating than in response to
earnings changes, though of course that may follow. We continue to try and
strike the right balance between near term earnings risk versus what is priced
in and long-term franchise value and revisit every investment to track our
thesis is still valid and the upside far outweighs any potential downside.
There have certainly been higher profile negative updates in the US,
particularly in US retail which we believe has weighed on some UK names in
this space. One area where we’ve been increasing our short exposure is to
over-leveraged companies that have large percentages of their debt due for
refinancing soon. There are still lots of companies out there reliant on
funding for growth, where the cost of debt has doubled with analyst DCF
(discounted cash flow) models yet to reflect market reality.

As stated last month, we have reduced the gross of the portfolio and this is
now around 106% (with the net approximately 101%) reflecting the heightened
uncertainty and deteriorating backdrop. In light of the points above, we
continue to ask ourselves what the appropriate net for the portfolio should
be. The reason we haven’t gone net short is not because we have high
conviction the market has bottomed, but because we continue to see a
significant asymmetrical risk/reward profile in our long book where share
prices are already pricing in significant earnings cuts whilst little to no
attention (and value) is ascribed to their long-term prospects to increase
their profits (and share prices) materially in time. Our short book which has
not been that effective until recent weeks is now really starting to build
momentum and we see more progress to come. We continue to believe the best
value in the market today remains in well-financed companies with enduring
long term organic growth prospects that will use this period to enhance their
position to win more share. To that end, we believe we own many of these in
our long book, and while we wait for this to play-out we take comfort from the
increasing number of company buybacks we are witnessing as Management teams
retire their equity at current valuations. This dynamic seems much healthier
to us than recent times, and it gives us some faith that we can protect
capital and make money with the short book, while storing up the potential for
substantial upside in the long book in due course.  We thank shareholders for
your ongoing support.

(1)Source: BlackRock as at 30 June 2022

26 July 2022

ENDS

Latest information is available by typing www.blackrock.com/uk/thrg on the
internet, "BLRKINDEX" on Reuters, "BLRK" on Bloomberg or "8800" on Topic 3
(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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