Throgmorton Trust Regulatory News (THRG)

BlackRock Throgmorton Trust Plc - Portfolio Update

PR Newswire

London, April 27

The information contained in this release was correct as at 31 March 2020. 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 March 2020 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 2019 interim dividend declared on 23 July 2019 and paid on 28 August 2019, together with the 2019 final dividend declared on 06 February 2020 and paid on 27 March 2020.

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 0 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 2019.

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). On the first day of the financial year outperformance from the previous financial year (if any) is carried forward and accrued in the daily NAV released to the London Stock Exchange.

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

During a month where global stock markets continued to fall significantly, the Company fell by 24.7%1 (net of fees), thereby marginally underperforming our benchmark, the Numis Smaller Companies plus AIM (excluding Investment Companies) Index, which fell by 23.9%1. Unsurprisingly the short book contributed positively to performance during the month, delivering +2.4%1, whilst the long book detracted.

During March we saw an acceleration of the spread of the Coronavirus into Europe and the US, which caused rapid sell offs in stock markets globally. The market falls during the month have not only been large, but also very sharp, with daily falls larger than those experienced in the 2008 financial crisis, with large daily and intra-day moves throughout the month.

The scale of government and monetary authority interventions over the month were huge. These include both lower interest rates and monetary easing as well as direct interventions to cover labour costs and ease business costs in the face of a social shutdown. On this last point, leisure has been one of the industries hit hardest in the sell-off and this, with our wider consumer services exposure, has been a material drag on returns. Whilst we don’t think the Government’s actions will draw a line under valuations, this should help alleviate an emerging liquidity crisis engulfing so many businesses that were on a completely different trajectory only a matter of weeks ago. Unfortunately, many companies, will not make it through to the other side, or will survive but in a much-weakened state. It is our belief that this virus will result in the structural withdrawal of capacity in many industries, and therefore we are likely to enter a period of heightened “corporate Darwinism” will that will create opportunities for those survivors with the financial resources to win market share and further solidify their market position, which will be increasingly important for industries where the recovery in demand is more elongated.

The largest detractors from performance during the month came from our holdings in Consumer Services, where several companies we own have been mandated to suspend operations and are therefore generating zero, or close to zero, revenues. To hold ourselves up to account, with hindsight we were too slow to reduce our exposure in Consumer Services in aggregate, particularly those with exposure to airport passenger volumes. WH Smith and Watches of Switzerland were among the top detractors during the month. We were short several other companies in this space too however, with inferior financial positions which were among the top contributors during the month.

While the businesses on the consumer side of our portfolio have hurt performance the most, reflecting a sudden move that has collapsed short-term demand, the companies we own exposed to business-to-business spending have fared much better. Many of the long-term trends in this area could really accelerate in our opinion due to COVID-19; notably the adoption of software and cloud infrastructure to aid the digital transformation (infrastructure-as-a-service, business software, cloud communications), or digital payments. The reality is that COVID-19 will change many habits, from increased “working-from-home” (and the software and systems required to support this) to online communication/collaborations, online ordering/delivery and digital payments. We believe our portfolio includes many companies driving these secular shifts and therefore continue to see many years of positive growth ahead. It should also be noted that some of these new changes to our lifestyles, both work and social, could have far reaching negative implications for some incumbent models if they persist, which we think is quite probable. As such, the “recovered” earnings for some companies will likely disappoint, and this is an area exercising a lot of our attention and where we see grounds for new longer duration short positions.

It should be noted, that amidst all the panic and uncertainty right now, long term investment opportunities continue to present themselves. Many companies we’ve engaged with recently have been able to quickly reduce their cash burn so enable them to “hibernate” to preserve equity value for the upturn. Others have sought equity injections to ensure they emerge from this crisis on the front foot, or have secured waivers of their banking covenants. We also believe that some industries will see their aggregate growth rates accelerate on a 5-year view e.g. digital payments, cloud audio/visual communication, software-as-a-service, infrastructure-as-a-service. Other companies will emerge with a strong market position as capacity exits. And to the future, there will be new and exciting small and medium sized companies that will emerge to capitalize on the profound changes many industries will endure and the structural changes in corporate and consumer behaviour that will likely occur.

1Source: BlackRock as at 31 March 2020

27 April 2020

ENDS

Latest information is available by typing www.blackrock.co.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.