Portfolio Update

BLACKROCK THROGMORTON TRUST PLC
(LEI: 5493003B7ETS1JEDPF59)
 

All information is at 30 September 2019 and unaudited.
Performance at month end is calculated on a cum income basis

	One Month	Three months	One year	Three years	Five years
Net asset value	0.3	1.9	-0.1	51.0	99.4
Share price	-0.7	1.2	6.0	80.9	126.3
Benchmark*	1.5	-1.2	-7.3	13.0	34.9

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:	582.88p
Net asset value incl. income:	588.08p
Share price	570.00p
Discount to cum income NAV	3.1%
Net yield1:	1.8%
Total Gross assets2:	£430.1m
Net market exposure as a % of net asset value3:	98.5%
Ordinary shares in issue4:	73,130,326
2018 ongoing charges (excluding performance fees)5,6:	0.6%
2018 ongoing charges ratio (including performance fees)5,6,7:	1.3%

1. Calculated using the 2019 interim dividend declared on 23 July 2019 and paid on 28 August 2019, together with the 2018 final dividend declared on 12 February 2019 and paid on 28 March 2019.
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 7,400,000 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 2018.
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).

Sector Weightings	% of Total Assets
Consumer Services	28.1
Industrials	22.8
Financials	21.4
Consumer Goods	8.3
Health Care	6.6
Technology	5.4
Telecommunications	2.0
Basic Materials	1.6
Oil & Gas	0.5
Net current assets	3.3
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Total	100.0
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Market Exposure (Quarterly)
	30.11.18	28.02.19	31.05.19	31.08.19
Long	103.7	108.7	113.7	109.1
Short	10.5	14.9	13.2	11.2
Gross exposure	114.2	123.6	126.9	120.3
Net exposure	93.2	93.8	100.5	97.9

Ten Largest Investments
Company	% of Total Gross Assets
4imprint Group	3.4
YouGov	2.8
IntegraFin	2.8
Workspace Group	2.7
Dechra Pharmaceuticals	2.6
SSP	2.6
Serco	2.6
Beazley	2.2
Bodycote	2.2
Aveva	2.2

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

During September the Company’s NAV per share rose by 0.3%¹ to 588.08p on a cum income basis, while our benchmark index, the Numis Smaller Companies plus AIM (excluding Investment Companies) Index, rose by 1.5%¹. The long book generated 0.8%¹ of gross performance while the short book lost -0.5%¹.

Despite equity markets rising, September was a volatile month, with a sharp style rotation in market leadership away from growth and into value. Despite this reversal being one of the most severe since our risk models began in 1995, our long book actually made a positive contribution to performance, which we would attribute to positive stock specifics which continue to triumph over broader market moves.

The largest contributor during the month was JD sports which delivered its third upgrade this year and saw its shares rally strongly. Incredibly, this differentiated retailer is still delivering high-single digit like-for-like sales growth in-store in the UK. We highlight this because it goes to show that differentiated businesses can perform, and one shouldn’t always believe company statements about ‘weather’ and ‘weak macro’. JD Sports is now up by +115% in 2019 and has been a strong driver of performance for our portfolio, though we have taken advantage of an all-time high share price to moderate our position size and lock in some of the gains. Workspace Group rose, reversing some of the weakness seen last month as domestic shares generally benefitted from the style rotation. 4imprint continued to make gains, having reported solid results back in July.

The short book in aggregate modestly detracted during the month, however this was more a cumulative effect from a number of our short positions in challenged businesses with weak financial structures rallying with the broader market, rather than anything stock specific. We therefore don’t believe this represents a permanent loss of capital, as shares in poor businesses do not become fundamentally attractive simply because they’ve recently been weak, or because they optically look cheap on a price to adjusted earnings basis. 

Of the detractors during the month, many of these were companies that were caught up in the style rotation away from growth shares, rather than share price falls that were related to company specific newsflow. Dechra Pharmaceuticals and YouGov, are two examples of shares that fell during the month for no other reason than the fact that the shares have performed very well recently. In both cases these businesses remain well positioned and on track to continue to deliver material earnings growth over the long-term. The largest detractor was stock specific however, and that was our position in SSP Group, which fell in response to a trading statement which was generally strong but also included a modest downward revision in forward like-for-like sales estimates. We do not think this constitutes a structural change in the investment case as new contract momentum is robust and the secular growth backdrop of travel is as attractive to us as ever.

In summary, September was a challenging month for the portfolio, particularly given the quantum of the reversal away from ‘growth’ and into ‘value’, which created a significant headwind to our growth biased investment style. We have experienced similar style reversals in the past, and as painful as they are in the short term, what is most important is for us to determine whether the financial markets are signalling a real impending problem to be revealed in corporate earnings, or whether this is a short term technical dynamic. Our view is the latter, but of course should this change we would act accordingly. We believe this style reversal will prove transitory and, more importantly, that the portfolio has had no material stock specific negative impact this month where we believe there is a risk of a permanent loss of capital. Performance year to date has been strong and we remain comfortably ahead our benchmark, therefore during sharp technical reversals it is often those shares that have performed well that are the first to suffer. Longer term we remain confident in the outlook for the companies in our portfolio, many of these are strong businesses with robust finances and innovative businesses that are investing in digital transformation, disrupting existing profit pools and taking market share from legacy incumbents. Given recent market volatility we continue to operate with a diverse short book and a lower than average net exposure to the market of 98.5%.

¹Source: BlackRock as at 30 September 2019

24 October 2019

ENDS

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