Throgmorton Trust Regulatory News (THRG)

BlackRock Throgmorton Trust Plc - Portfolio Update

PR Newswire

London, June 23

The information contained in this release was correct as at 31 May 2023. 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 31 May2023 and unaudited.Performance at month end is calculated on a cum income basis

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.

1. Calculated using the 2022 interim dividend declared on 20 July 2022 and paid on 26 August 2022, together with the 2022 final dividend declared on 10 February 2023 and paid on 31 March 2023.

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 2,914,079 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 2022.

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 2022.

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).

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

The Company returned -2.0% in May, outperforming the Numis Smaller Companies + AIM (excluding Investment Companies) benchmark which fell by -3.5%.1

May was another volatile month in global markets with significant dispersion in returns across geographies and sectors. The FTSE 100 Index fell by 4.9% and the FTSE 250 Index fell by 3.4%, whilst the S&P 500 Index was roughly flat and the Nasdaq was up by 7.6% in the month. While investors may read this update and question the relevance of US large cap indices to a UK small and mid-cap focused company, we thought it was an interesting datapoint to highlight the level of divergence across equity markets during the month. This dispersion was driven by two main trends, firstly continued fears over global growth, with particular fears about the state of the Chinese recovery in the month, and secondly the rapid rise of Generative AI and its implications across sectors.

We have little to add on the global growth debate that we haven’t already said in previous monthly updates. However, Generative AI continues to excite us; it is a technology that has the potential to change business models and industry structures in profound ways that will be felt over many years to come. Many of these changes are inconceivable to us today with the technology still in its infancy but it is already having huge impact in some specific companies and indeed financial markets. Such seismic industry change happens only rarely, and whilst there are few ways in our universe to truly capitalise in the near term (Bytes an indirect play on Microsoft perhaps a rare exception) we are likely to focus more of our attention on the emerging risks AI may present to shares we own or those stocks we can short. Moreover, for all the hype AI has attracted, the dispersion in returns across many parts of the market are extreme, with the valuations of many UK small and mid-cap companies compelling in my view.

The largest positive contributor to performance during the month was Diploma which rose in response to impressive first-half results which showed better than expected organic revenue growth, improving margins and strong cash generation. The company has delivered over 10% organic revenue growth in the period and raised their full year guidance reflecting the strength of underlying trading. YouGov rallied strongly after an investor day which confirmed a strong growth outlook and laid out a plan to double revenues over the medium term. We have owned the shares for many years and continue to think the size and duration of the growth opportunity offered by their unique platform of consumers and data remains under appreciated by the market even after their run this month. Bytes Technology made a positive contribution in the month as the shares rose after the company reported a 21% increase in gross profit (which is effectively their revenue) accompanied by a positive outlook statement. Despite the challenging macroeconomic backdrop, demand for their services remains robust as businesses continue to prioritise investment in IT infrastructure, and Bytes have been taking a greater share of wallet in this space, winning share from weaker peers.

The biggest detractor during the month was Watches of Switzerland who issued a trading statement which was ahead of expectations but highlighted margin pressure in the coming financial year, principally from the rising cost of interest free credit products in a higher interest rate environment. This is certainly disappointing, but we do not consider it investment case threatening. The company is still growing strongly and has an enviable market position as a key route to market for luxury watch brands globally. Recent feedback from industry conferences suggests demand for the category remains strong. A valuation, at under 12x price to earnings, for this current financial year with a net cash balance sheet looks extremely attractive to us given the runway of growth to take market share in both the US and Europe, and its management’s stated desire to do value accretive acquisitions. Future, the media company, was the second largest detractor. This is a company that we bought back into very recently (having sold some years back) thinking the sell-off had gone too far and a challenging advertising outlook had already been priced into the shares which were around

We remain optimistic about prospects for the Company. Within the long book, the vast majority of our companies continue to report positive results, demand remains robust and management are confident in their outlook, both in terms of end market strength and their ability to take market share. Meanwhile, the short book has made a positive relative contribution in recent months, providing an element of protection during periods of negative market returns. We continue to see several areas of significant mispricing in markets, notably UK midcaps where in general results remain strong and share prices and valuations remain depressed. It seems odd to us that nirvana is starting to be priced in some parts of the stock market and the apocalypse in others. We continue to gently re-cycle capital into these opportunities as we see them on a stock specific basis. As a result, the net of the portfolio is slowly increasing and is now around 113%, while the gross is c.116%.

1Source: BlackRock as at 31 May 2023

23 June 2023

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.