BlackRock Smaller Companies Trust plc

About this investment trust

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

The Company aims to achieve long-term capital growth for shareholders through investment mainly in smaller UK quoted companies.

Why choose it?

We aim to find the ‘hidden gems’ within the small cap universe, investing in high-quality growth companies that are able to shape their own futures regardless of the wider economic environment. As active managers, we believe this area presents us with an attractive hunting ground: these companies are often under-researched, and pricing is inefficient. This gives us great opportunities to generate returns for our clients over the long term.

Suited to…

Investors looking for carefully selected opportunities among the UK’s vibrant small cap sector for long-term capital growth. Investors need to be able to tolerate variation in their capital.

Morningstar Rating: Since January 2012.
Awards/Ratings have not been superseded to date.

The Morningstar Analyst Rating is subjective in nature and reflects Morningstar’s current expectations of future events/behaviour as they relate to a particular fund. Because such events/behaviour may turn out to be different than expected, Morningstar does not guarantee that a fund will perform in line with its Morningstar Analyst Rating. Likewise, the Morningstar Analyst Rating should not be seen as any sort of guarantee or assessment of the creditworthiness of a fund or of its underlying securities and should not be used as the sole basis for making any investment decision.

Past performance is not a reliable indicator of future results and should not be the sole factor of consideration when selecting a product or strategy.

What are the risks?

• Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
• Net Asset Value (NAV) performance is not the same as share price performance, and shareholders may realise returns that are lower or higher than NAV performance.
• The Trust’s investments may have low liquidity which often causes the value of these investments to be less predictable. In extreme cases, the Trust may not be able to realise the investment at the latest market price or at a price considered fair.
• Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall.
• Smaller company investments are often associated with greater investment risk than those of larger company shares.

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ESG Integration

The fund noted above does not commit to sustainable criteria nor does it have a sustainable investment objective.

BlackRock considers many investment risks in our processes. In order to seek the best risk-adjusted returns for our clients, we manage material risks and opportunities that could impact portfolios, including financially material Environmental, Social and/or Governance (ESG) data or information, where available. See our Firm Wide ESG Integration Statement for more information on this approach and fund documentation for how these material risks are considered within this product, where applicable.

Fund manager commentary

30 April 2025

Comments from the Portfolio Manager

Please note that the commentary below includes historic information on the Company’s NAV performance and index performance.

The figures shown relate to past performance. Past performance is not a reliable indicator of future results.

1,424.70p on a total return basis, while our benchmark index, the Deutsche Numis Smaller Companies plus AIM (excluding Investment Companies) Index, returned 2.6%. ¹

Market turmoil continued through April, which began with significant volatility following U.S. President Donald Trump's ‘Liberation Day’ announcement of a reciprocal tariff strategy on April 2nd. The S&P 500 experienced its worst day since March 2020 and its best day since 2008, while the 10-year Treasury yield saw its largest weekly jump since 2001. Equity markets globally sold off on the day, although the UK stood out as a relative outperformer. A week later, Trump announced a 90-day pause on tariffs for non-retaliating countries, leading to a relief rally in global markets. However, renewed focus on US-China tensions caused further pressure on markets. The US dollar and Treasuries also subsequently sold off as banks and investors warned that Donald Trump’s tariffs could tip the US into recession even as the President stepped back from the initial tariff implementation.

The UK economy grew by a faster-than-expected 0.5% in February. Positively, the UK mortgage market also saw a notable expansion in low-deposit products, with the increased availability reflecting lender confidence and improving market liquidity, though borrowing costs remain elevated. UK small and mid-caps fared better than large caps in April, with the FTSE 250 Index rising +2.7% given its lower exposure to US tariffs than the FTSE 100 Index. UK domestics, in particular housebuilding, performed particularly well alongside property given their defensiveness to tariffs, as well as expectations of a further rate cut by the Bank of England (BoE) in May.

Performance during the month was impacted by a number of factors, some stock specific and some were factors impacting stocks that we do not own. The largest detractor was ingredients manufacturer, Treatt, which fell after the company issued a profit warning as a result of softening US consumer demand, rising citrus prices and geopolitical uncertainty further weighing on market conditions. Shares in identity verification software provider, GB Group, fell after the company warned on their near-term outlook. While full-year trading had been reasonably strong, tariff related uncertainty raised questions over future demand for their services as a result of potential delays to its global customers making investment decisions. Other detractors included companies we do not own which performed well and make up a reasonable weight in the benchmark. For example, Alphawave rose on the news of a potential takeover from Qualcomm and Mitie rallied on results that were ahead of expectations.

The largest positive contributor was Youngs Brewery, recovering some of its recent losses through the month ahead of its full-year results announcement. A strong trading statement from JD Wetherspoon, also a holding in the portfolio, early in the month helped provide some momentum to the shares, with recent trading for the company helped by ‘favourable weather’ and a robust consumer backdrop. Alpha Group recovered strongly following the initial ‘Liberation Day’ selloff, likely buoyed by its relative defensiveness to US tariffs. The company also increased its dividend to be paid in May, which provided further momentum to the shares. The trend of M&A (mergers and acquisitions) in UK small & mid-caps showed no signs of slowing with shares in our holding of data analytics business, GlobalData, rising sharply on the news that the company received two takeover proposals from major private equity firms ICG Europe Fund and KKR.

Whilst the UK Budget did have a negative impact on the UK market, and in particular, domestic stocks, this has rapidly been reflected in share prices to the point where we now see value in lots of these names. If anything, our current view is becoming more positive on the outlook for the UK equity market. Post Trump’s tariff announcement the 5-year swap rate has contracted materially, leading to a fall in mortgage rates and increasing competition between lending banks. Unemployment, whilst rising is still at low levels, real wage growth remains positive, and the savings ratio in the UK is high. The Asda Income Tracker published on 22^nd April shows 10% annual growth in household disposable income. Activity in the UK housing market appears to be recovering, with the recent round of trading statements from the builders and the suppliers highlighting a recovery in activity. UK property stocks remain in deep value territory, but again recent updates have shown strength in lettings, and with yields falling, NAVs appear to have found a floor.

We also draw more comfort in the recent actions of the Government. The recognition that over-regulation is stifling industry and the planning process has become a problem has been met by a change at the head of the CMA (Competition and Markets Authority) and the approval of the Lower Thames Crossing. Instead of talk there has been some real action. Kier Starmer has in recent times appeared statesman-like; managing Trump well, being forthright on Ukraine, and making encouraging overtures to Europe. Rachel Reeves is in a challenging fiscal spot. There can be no doubt of this, but with the potential changes from a revised Mansion House agreement she may produce buyers of UK assets.

The pace of M&A shows little signs of slowing, with 15 deals in the first quarter of the year, and this has accelerated since the start of the second quarter. Finally, there is the valuation argument. This is the deepest and longest period of underperformance of UK SMID vs large cap we have seen in over 40 years. After the underperformance since the budget, the mid-cap is now 45% down relative to the FTSE 100 Index. With the weakening of the US dollar those domestic companies that make up a significant amount of the UK SMID market will see cost of goods falling, potentially at the same time consumers start to loosen the purse strings and access the savings they are currently holding.

With all the uncertainty in the US equity market and investors looking for other places to allocate money, a stabilising and cheap UK market could be a valid and attractive alternative.

We thank shareholders for your ongoing support.

¹Source: BlackRock as at 30 April 2025

Unless otherwise stated all data is sourced from BlackRock as at 30 April 2025.

Any opinions, forecasts represent an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research, investment advice or a recommendation.

Risk: Reference to the names of each company mentioned in this communication is merely for explaining the investment strategy and should not be construed as investment advice or investment recommendation of those companies.

Portfolio manager biography

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Roland Arnold is manager of BlackRock Smaller Companies Trust plc and a member of the UK Equity Team. Mr Arnold has been co-manager of the BlackRock UK Special Situations Fund since August 2012, and manager of Small & Mid Cap UK Equity Portfolios since 2006. Roland’s service with the firm dates back to 2000, including his years with Merrill Lynch Investment Managers (MLIM), which merged with BlackRock in 2006.

Board of directors

All of the Directors are independent of the management company and are members of the Management Engagement Committee. With the exception of the Chairman all Directors are members of the Audit Committee.

Ronald Gould (Chairman) was appointed to the Board in April 2019 and became chairman of the Company in June 2019. He is currently Chairman of Henderson Far East Income Trust plc, Think Alliance Asia and was previously Chairman of Credo Capital Partners AB, Compliance Science Ltd and a Non-Executive Director of the JPMorgan Asian Investment Trust plc. He was also previously Managing Director and Head of the Promontory Financial Group in China, CEO of Chi-X Asia Pacific, Senior Adviser to the UK Financial Services Authority, CEO of investment bank ABG Sundal Collier and Vice Chairman of Barclays Bank asset management activities.

Susan Platts-Martin (Senior Independent Director) appointed on 21 April 2016, is the Chairman of Baillie Gifford China Growth Trust plc and formerly sat on the Advisory Board of the Barings Targeted Return Fund. She previously acted as Protector of Power to Change Trust. A qualified chartered accountant with 26 years' experience in financial services, she was the first head of investment trusts at Fidelity International, responsible for establishing and growing a successful investment trust business. She has experience of both open and closed ended funds having also been director of product development and head of fund accounting at Fidelity.

Mark Little (Chairman of the Audit Committee) was appointed to the Board on 1 October 2020. He is a non-executive director and also chairs the audit committees of the Majedie Investment Trust Plc and Securities Trust of Scotland Plc and is a non-executive Director and audit committee chairman designate of the Abrdn Equity Income Trust plc. He was also previously Investment Director at Seven Investment Management and a non-executive director (and audit committee chairman) of Sanditon Investment Trust plc as well as a non-executive director for the start-up business UWI Technology and the charity Winning Scotland Foundation. Mr Little has a wealth of experience in the financial services sector, and began his career as a fund manager with Scottish Widows Investment Management after qualifying as a chartered accountant with Price Waterhouse in 1991. He subsequently worked as Global Head of Automotive Research for Deutsche Bank and joined Barclays Wealth in 2005, where he became Managing Director of Barclays Wealth (Scotland and Northern Ireland).

James Barnes was appointed to the Board on 31 July 2021. He is a Non-Executive Director and is also currently the Chairman of Vestey Holdings, the Horticultural Trades Association, Thirlstane Castle Trust and the Crieff Food Company and was previously a Director and Chairman of Dunedin Smaller Companies Trust plc. Mr Barnes was also previously a Director of Dobbies Garden Centres plc; he was instrumental in growing the business and leading its sale to Tesco in 2007. Mr Barnes has a wealth of experience in the financial services and UK smaller companies sector and began his career in corporate finance and investment banking.

Helen Sinclair was appointed to the Board on 1 March 2022. She began her career in investment banking and spent nearly eight years at 3i plc focusing on management buy-outs and growth capital investments. She later co-founded Matrix Private Equity (which became Mobeus Equity Partners) in 2000 and subsequently became Managing Director of the company before moving to take on a number of non-executive director roles. She is a non-executive director of WH Ireland Group plc, Shire Income plc and Sherborne Investors (Guernsey) C Limited and Chairman of Octopus Future Generations VCT PLC. Ms Sinclair was previously Chairman and non-executive director of British Smaller Companies VCT and a non-executive director of Mobeus Income & Growth 4 VCT plc and The Income & Growth VCT plc.

Dunke Afe was appointed to the Board on 1 January 2024 as a Non-Executive Director. She is an accomplished global marketing executive with extensive experience in raising brand awareness, delivering high-impact portfolio strategies and omni-channel marketing campaigns to drive business growth. She has previously worked with top blue chip multinationals including Unilever, Kimberly Clark and Estee Lauder. Ms Afe is also a Non-Executive Director of CT UK Capital and Income Investment Trust plc.