REG-BlackRock Throg Tst: Portfolio Update

Blackrock Throgmorton TrustAnnouncement

21/12/2022 16:15

The information contained in this release was correct as at 30 November
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 November2022 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      10.2       3.2   -31.1      3.0     24.7 
 Share price           7.4       5.3   -35.5     -3.1     40.9 
 Benchmark*            6.0      -0.2   -17.5      6.7      4.8 

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:                                          615.64p 
 Net asset value incl. income:                                          626.10p 
 Share price                                                            595.00p 
 Discount to cum income NAV                                                5.0% 
 Net yield (1):                                                            1.8% 
 Total Gross assets (2):                                                £633.4m 
 Net market exposure as a % of net asset value (3):                      103.3% 
 Ordinary shares in issue (4):                                      101,158,864 
 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 2022 interim dividend declared on 20 July 2022 and
paid on 26 August 2022, 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 2,051,000 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 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. 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
2021.
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                           32.1 
 Consumer Discretionary                21.5 
 Financials                            13.6 
 Technology                             6.4 
 Health Care                            5.2 
 Consumer Staples                       4.5 
 Telecommunications                     2.8 
 Energy                                 1.9 
 Basic Materials                        1.0 
 Information Technology                 0.8 
 Real Estate                            0.4 
 Communication Services                 0.4 
 Net Current Assets                     9.4 
                                      ----- 
 Total                                100.0 
                                      ===== 
                                            
 Country Weightings       % of Total Assets 
                                            
 United Kingdom                        93.4 
 United States                          3.3 
 France                                 2.1 
 Australia                              0.6 
 Netherlands                            0.6 
                                            
                                      ----- 
 Total                                100.0 
                                      ===== 

   

 Market Exposure (Quarterly)                                 
                                                             
                  28.02.22   31.05.22   31.08.22   30.11.22  
                          %          %          %          % 
 Long                 121.8      104.8      102.0      105.8 
 Short                  2.3        3.3        4.1        2.5 
 Gross exposure       124.1      108.1      106.1      108.3 
 Net exposure         119.5      101.5       97.9      103.3 

   

 Ten Largest Investments                            
                                                    
 Company                    % of Total Gross Assets 
                                                    
 Watches of Switzerland                         3.2 
 Oxford Instruments                             3.1 
 4imprint Group                                 3.1 
 RS Group                                       2.9 
 CVS Group                                      2.9 
 Ergomed                                        2.8 
 Gamma Communications                           2.8 
 Diploma                                        2.7 
 WH Smith                                       2.5 
 Auction Technology Group                       2.5 

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

The Company returned 10.2% during November, outperforming its benchmark, the
Numis Smaller Companies plus AIM (excluding Investment Companies Index) Index
 which rose by 6.0%.(1) Outperformance during the month was driven by the
long book, while the short book detracted marginally.

Financial markets and macro data remain volatile and markets continue to be
driven by inflation statistics and indications of slowing the pace of monetary
tightening from central banks. Global markets continued to recover from last
month’s lows and hopes of a peak in the pace of monetary tightening,
particularly in the US continued to build. A CPI miss and a slightly less
hawkish speech from Jerome Powell (Chair of the Federal Reserve) prompted
rallies across markets. Meanwhile, corporate earnings in our view continue to
come in better than feared. Indeed, many of our long positions have delivered
very strong updates during the month, three of which we outline below though
there have been more.

Watches of Switzerland was the largest contributor continuing its share price
recovery, buoyed by a solid Q2 trading statement in early November, which
revealed group revenues growing at 22% on a constant currency basis (or 30%
reported) in the period, once again surpassing sell-side expectations. We
continue to believe that Watches of Switzerland presents a very compelling
medium term growth story as they build out their US and European network in a
supply constrained industry. Tatton Asset Management, a leading provider of
Managed Portfolio Solutions (MPS), delivered very strong H1 results
demonstrating record levels of net inflows. MPS is the fastest growing channel
within the UK IFA sector and Tatton has the largest market share, and lowest
price proposition and distribution deals with the largest IFA networks setting
the scene for further strong inflows from here. 4imprint delivered another 10%
upgrade to forecasts, bringing the year-to-date upgrades to forecasts to 115%!
4imprint has seen an acceleration in market share gains after increased
investment through COVID as well as remixing their marketing efforts to
above-the-line advertising to drive brand awareness. This has driven record
revenue levels while the promotional products industry remains well below its
2019 level. 4imprint still has a single digit percentage market share, leaving
lots of runway for future market share gains.

RS Group (formerly Electrocomponents) fell after the company announced their
highly regarded CEO was taking a second leave of absence for personal reasons
with immediate effect.  Of course, our sympathies are with the CEO who we
regard very highly, but this development sadly overshadowed a very strong set
of H1 results which beat expectations.  For any cyclical growth company
(regardless of the structural overlay, or track record of market share gains)
the main fear is a weakening of demand, so although the company keeps beating
the fade, news of a CEO departure will only heighten concerns. We think the
decentralised operating model with strong autonomy to geographic heads
mitigates the impact of losing a talismanic strategic CEO but we can
rationalise the market’s worries.  Regrettably this was a top holding for
us so the share price fall has really weighed on monthly performance. Shares
in Alliance Pharma fell after the company warned that demand within its b2b
markets was recovering slower than anticipated. Sales have been impacted
further from destocking and as a result some large Q4 orders, referenced in
the interim results, will not materialise. The third largest detractor was
LondonMetric which delivered a fairly solid update in the context of the wider
market repricing, delivering further earnings progression from higher rental
income and strong cost control leading to an attractive dividend. However
capital values fell around 8% as yields pushed out.

Earlier in November, one of my colleagues spent a week at an industrials
conference in the US, where the messaging was robust given strong order books
and relatively stable order intake. As an aside, the buzzword from the
conference was “onshoring”, lending support to our own thesis on potential
for increased industrial spend as global companies seek to diversify away from
China and Taiwan. Many companies also discussed fading product inflation;
indeed, several management teams talked about driving overall deflation in
their supplier base next year as supply chain constraints ease, commodity
inflation is annualised and significantly lower shipping rates (particularly
on transpacific containers).

As we know the most important data presently for all market participants
remains the inflation data, and notably core inflation in the US which has
heavily influenced global monetary policies and created very large moves in
exchange rates and therefore earnings for many global companies, including UK
small and mid-caps. It is hard for us to give an accurate prediction of this
one statistic, but it does seem that any “good news” (i.e. lower statistic
here) has the potential to create an easing in rate rises and an improvement
in sentiment. So, feedback from companies (as outlined above) combined with
what we can evidence from broader macro data supports our thesis for peaking
inflation. To go further, some of the largest contributors to headline CPI
(energy and food) should now be showing much lower year-on-year increases and
might even turn negative year-on-year as we move into Q1 2023. The largest
contributor to core CPI is housing costs and the forward-looking data we can
access for rental asking prices (Zillow Observed Rent Index) suggest that the
rate of increase here rolled over 3-6 months ago and so should start showing
up in official current paid prices in the next few months. Anecdotally we also
observe many consumer facing companies are currently cutting prices to
stimulate sales, not least to clear excess inventory, so this suggests a lower
level of price pressure on consumer goods as well as the potential for
restocking in the coming months. We are therefore hopeful that inflation
conditions can ease in the coming months.

Nevertheless, as discussed in previous updates, we have lowered the
Company’s gross and net exposure to reflect the high levels of uncertainty.
The gross of the Company is therefore around 105% and the net is around 102%,
and we remain net long to reflect the potential that we think is inherent in
many holdings given much lower valuations but, we believe, secular growth
prospects.

This is the last monthly commentary for 2022, so on behalf of the whole team,
we’d like to thank you for your support during this particularly challenging
year and wish you all a Merry Christmas.

(1)Source: BlackRock and London Stock Exchange as at 30 November 2022

21 December 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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