BlackRock Throgmorton 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 provide shareholders with long-term capital growth and an attractive total return by investing primarily in UK smaller companies and mid-capitalisation companies traded on the London Stock Exchange.

Why choose it?

The BlackRock Throgmorton Trust looks to back the UK’s emerging companies. An unusual feature of the Trust is its ability to ‘short’ companies that we find unattractive, enabling us to profit if the share price falls. This gives the Trust’s manager the opportunity to back investment ideas with real conviction, within a strong risk framework.

Suited to…

Investors who want a dynamically managed portfolio of growing companies but are comfortable with a limited degree of ‘short’ exposure.

AJ Bell Online Personal Wealth Awards 2021: As at 8 March 2021.
AJ Bell Award: As at 3 September 2021.

Awards/Ratings have not been superseded to date.
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.
• The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss.
• Derivatives may be used substantially for complex investment strategies. These include the creation of short positions where the Investment Manager artificially sells an investment it does not physically own.
• Derivatives can also be used to generate exposure to investments greater than the net asset value of the fund/investment trust. Investment Managers refer to this practice as obtaining market leverage or gearing. As a result, a small positive or negative movement in stockmarkets will have a larger impact on the value of these derivatives than owning the physical investments. The use of derivatives in this manner may have the effect of increasing the overall risk profile of the Funds.

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Fund manager commentary

30 September 2024

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.

The Company returned -2.5% in September, while its benchmark, the Deutsche Numis Smaller Companies +AIM (excluding Investment Companies) Index, returned -2.1%.¹

UK economic data remains robust and there are clear signs of an inflection in the housing market (mortgage approvals, agreed sales, and house prices all showing strong increases).² The uncertainty over the forthcoming October budget has cast a pall over certain sections of the UK market, particularly those companies whose founders and management teams are sitting on a lot of equity and capital gains they fear may soon be impacted by potential tax changes (hence a wave of founder sell-downs ahead of the budget). The AIM market has been particularly hit over concerns regarding IHT (inheritance tax) relief, whilst concerns over potential changes to CGT (capital gains tax) and pension tax relief are likely to have been the driver for the recent wave of selling of SMID (small and mid-cap) shares.

Consumer confidence dropped in the latest reading but remains robust and also is a volatile indicator.³ More positively, household cashflow remains very strong, so high savings rates, strong employment and real wage growth against a backdrop of falling inflation gives plenty cause for optimism. Indeed, aside from the inflection we have seen in the housing market I referenced earlier, we can also observe positive readings from UK Construction PMIs and even Services PMIs (Purchasing Manager’s Index) remain in expansion territory. Whilst a degree of uncertainty remains, we don’t think this will be enough to de-rail the emerging recovery. With an improving housing market, real wage growth and robust consumer and corporate balance sheets, our hope remains that the upcoming budget will be a clearing event as uncertainty is removed^2,3,4.

The largest positive contributor during the month was WH Smith which reported a trading update that saw like-for-like sales improve and an announcement of a share buyback following de-leveraging post recovery from the pandemic. Over 80% of the group's profits now come from its travel retail division where it continues to take market share, and we believe growth may accelerate from here as the company laps relatively easy comps. The second largest contributor was a short in a UK listed Semiconductor business which issued a large profit warning, the second in less than six months, with the company pointing to a change in revenue mix towards long-term contracts with longer revenue recognition cycles. We continue to have concerns over the accounting, capital intensity and weak free cashflow generation remain and so we have maintained our short. The third largest contributor was our long-term holding Gamma Communications. The shares rallied after the company reported interim results showing growth in both revenues and profits, as the business has seen growing demand for its expanded product set that help businesses deal with their increasingly complex communication needs.

TT Electronics was the biggest detractor as the shares fell in response to a profit warning. The company saw slower demand in one division and operational issues in another leading to cost over runs. The result was large negative revisions to forecasts. This is particularly disappointing given the update came so soon after half year results and a supportive meeting with management where we were reassured by management's comments about the strength of the order book and on the new CEO's drive to impose more operational discipline. We have reduced the position but retain a holding as we think neither problem is permanent and the current mid-single digit PE (price to earnings ratio) multiple on depressed profits (and high teens FCF (free cash flow) yield) doesn’t reflect the long-term outlook for the business. Next Fifteen also had a profit warning in the period as a five-year contract with a Middle Eastern client was cancelled after only three years. The company also saw some slowdown in spending from technology clients.

As with TT Electronics, we reduced the position but retain a holding as the current mid-single digit PE, teens FCF yield doesn’t reflect the business outlook over a long-term horizon. The third largest detractor was Playtech, a business that we do not own that is a relatively large weighting in the benchmark and performed well therefore hurting relative performance.

Overall positioning in the portfolio remains unchanged and we have high conviction in our holdings. As mentioned in recent updates, we see particularly compelling opportunities in the UK at present, and have been increasing exposure across a variety of cheap UK domestics including housebuilders, brick manufacturers and RMI (repair, maintenance and improvements) plays. However, we continue to believe that volatility is likely to remain elevated in the coming weeks and months, particularly ahead of the US election and the UK budget. As a result, the net and gross exposure are currently lower than normal levels at around 109% and 112% respectively.² Furthermore, our current exposure ensures that we keep some dry powder for us to deploy and introduce new ideas. As the dust settles, we will look to add risk accordingly, across UK domestic and International focused businesses, which we believe look far too cheap for the growth potential that they offer.

We thank shareholders for your ongoing support.

¹Datastream and London Stock Exchange as at 30 September 2024.
²RICS September 2024 UK Residential Market Survey
³GFK Consumer Confidence index September 2024
⁴Asda Income Tracker and Lloyds Business Barometer

Unless otherwise stated all data is sourced from BlackRock as at 30 September 2024.

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.

Daniel Whitestone, Managing Director, is Head of the Emerging Companies team, within the Fundamental Equity Division of BlackRock's Active Equity business. He is the lead Portfolio Manager for BlackRock Throgmorton Trust plc, BlackRock UK Emerging Companies Hedge Fund and BlackRock UK Emerging Companies Absolute Return Fund.

Dan's service with the firm dates back to 2013. Prior to joining BlackRock, Dan worked for UBS, where he was the head of the UK small and mid-cap sales desk and ranked the number one salesperson in the Extel Small/Mid-Cap sales ratings in 2011 and 2012. Prior to working at UBS, Dan joined Noble and Co in 2006 as a UK small and mid-cap salesman. He began his career at Accenture, in 2003 as a strategy consultant.

Dan earned a BA Hons degree in Combined Studies from the University of Newcastle-Upon-Tyne.

Board of directors

All the Directors are non-executive, independent of the Investment Manager and members of the Audit Committee, Management Engagement Committee and the Nomination Committee.

Christopher Samuel (Chairman) was appointed to the Board in June 2016. He was Chief Executive of Ignis Asset Management from 2009 until its sale to Standard Life Investments in 2014. He was previously Chief Operating Officer at Gartmore and Hill Samuel Asset Management and was a partner at Cambridge Place Investment Management. He is a Non-Executive Director of Quilter plc (including subsidiaries Quilter Financial Planning Limited, Quilter Investment Platform Limited and Quilter Life & Pensions Limited). Mr Samuel was formerly Chairman and a Non-Executive Director of JP Morgan Japanese Investment Trust plc and a non-Executive Director of the Alliance Trust plc, UIL Limited and its subsidiary UIL Finance Limited. He graduated from Oxford with an MA in Philosophy, Politics and Economics. He qualified as a Chartered Accountant with KPMG.

Angela Lane was appointed to the Board in June 2020. She had previously spent 18 years working in private equity at 3i, becoming a partner in 3i's Growth Capital business managing the UK portfolio. Since 2007, Angela has held several non-executive and advisory roles for small and medium capitalised companies across a range of industries including business services, healthcare, travel, media, consumer goods and infrastructure. She is currently the Audit Chair and Non-Executive Director of Pacific Horizon Investment Trust plc, Dunedin Enterprise Investment Trust plc and Seraphim Space Investment Trust plc.

Louise Nash was a UK Small and Mid-Cap Fund Manager, firstly at Cazenove Capital and latterly at M&G Investments which she left in 2015. She now works for family wine business Höpler. She also acts as a consultant to JLC Investor Relations. Louise holds an MA in German and Politics from the University of Edinburgh and the IMRO Investment Management Certificate.

Nigel Burton was appointed to the Board in December 2020. He has spent over 14 years as an investment banker at leading City institutions including UBS Warburg and Deutsche Bank, including as the Managing Director responsible for the energy and utilities industries. Nigel has also spent 15 years as Chief Financial Officer or Chief Executive Officer of a number of private and public companies. He is currently a Non-Executive Director of AIM listed companies DeepVerge plc, Microsaic Systems plc, eEnergy Group plc and Location Sciences Group plc. He was formerly a Non-Executive Director of Digitalbox plc, Corcel plc, Modern Water plc, Alexander Mining plc, Mobile Streams plc and Chairman of Remote Monitored Systems plc.

Merryn Somerset Webb was appointed to the Board in March 2021. She has significant experience of financial matters through her role as a senior columnist for Bloomberg Opinion and writes extensively on this subject across radio and television. She is also a former Editor-in-Chief of MoneyWeek, the UK personal finance magazine. Merryn brings valuable investment trust specific experience. She is a former Non-Executive Director of Murray Income Investment Trust plc, Baillie Gifford Shin Nippon Public Limited Company and Netwealth Investments Limited.

ESG Integration

Environmental, Social and Governance (ESG) investing is often conflated or used interchangeably with the term “sustainable investing”. BlackRock has identified sustainable investing as being the overall framework and ESG as a data toolkit for identifying and informing our solutions. BlackRock has defined ESG Integration as the practice of incorporating material ESG information and consideration of sustainability risks into investment decisions in order to enhance risk-adjusted returns. BlackRock recognises the relevance of material ESG information across all asset classes and styles of portfolio management. The Investment Manager may incorporate sustainability considerations in its investment processes across all investment platforms. ESG information and sustainability risks are included as a consideration in investment research, portfolio construction, portfolio review, and investment stewardship processes.

The Investment Manager considers ESG insights and data, including sustainability risks, within the total set of information in its research process and makes a determination as to the materiality of such information in its investment process. ESG insights are not the sole consideration when making investment decisions and the extent to which ESG insights are considered during investment decision making will also be determined by the ESG characteristics or objectives of the Company. The Investment Manager’s evaluation of ESG data may be subjective and could change over time in light of emerging sustainability risks or changing market conditions. This approach is consistent with the Investment Manager’s regulatory duty to manage the Company in accordance with their investment objectives and policies and in the best interests of the Company’s investors. The Investment Manager’s Risk and Quantitative Analysis group will review portfolios to ensure that sustainability risks are considered regularly alongside traditional financial risks, that investment decisions are taken in light of relevant sustainability risks and that decisions exposing portfolios to sustainability risks are deliberate, and the risks diversified and scaled according to the investment objectives of the Company.

BlackRock’s approach to ESG integration is to broaden the total amount of information the Investment Manager considers with the aim of improving investment analysis and understanding the likely impact of sustainability risks on the Company’s investments. The Investment Manager assesses a variety of economic and financial indicators, which may include ESG data and insights, to make investment decisions appropriate for the Company objectives. This can include relevant third-party insights or data, internal research or engagement commentary and input from BlackRock Investment Stewardship.

Sustainability risks are identified at various steps of the investment process, where relevant, from research, allocation, selection, portfolio construction decisions, or management engagement, and are considered relative to the Company’s risk and return objectives. Assessment of these risks is done relative to their materiality (i.e. likeliness of impacting returns of the investment) and in tandem with other risk assessments (e.g. liquidity, valuation, etc.).

ESG integration does not change the Company’s investment objective or constrain the Investment Manager’s investable universe, and does not mean that an ESG or impact focused investment strategy or exclusionary screens have been or will be adopted by the Company. Similarly, ESG integration does not determine the extent to which the Company may be impacted by sustainability risks.