BLACKROCK THROGMORTON TRUST PLC

UK Smaller Companies – Exposure beyond the UK

More than a year on from the result of the EU referendum and the UK’s economic outlook remains unclear. Unknowns relating to Brexit negotiations may have an impact on business investment decisions, and the UK consumer faces a squeeze on disposable income as rising inflation is outstripping growth in wages (Trading Economics, as at 13 June 2017). Despite these difficulties, we believe that a trust such as the BlackRock Throgmorton Trust plc, which invests in UK small- and medium-sized companies, can offer opportunities, although, smaller company investments are often associated with greater investment risk than those of larger company shares.

Following the Brexit referendum result, sterling plunged against all major currencies (Bloomberg as at 30 June 2017, since 23 June 2016 sterling has depreciated 11.4% vs USD). The FTSE 100 subsequently rallied due to the larger proportion of earnings that it generates from outside of the UK (Bloomberg as at 30 June 2017, since 23 June 2016 FTSE100 has increased 16.8%). It is important to keep in mind that small- and medium-sized companies also generate a significant proportion of revenues from overseas. The FTSE 250 for example, generates around 48% of revenues from outside of the UK (Morgan Stanley Global Exposure Guide 2017).

Annual performance
(%) to last quarter
end (GBP)
31/12/12-
31/12/13
31/12/13-
31/12/14
31/12/14-
31/12/15
31/12/15-
31/12/16
31/12/16-
31/12/17
FTSE 100 (Total Return) 18.66 0.74 -1.32 19.07 11.95

The figures shown relate to past performance. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Source: BlackRock, as at 31 December 2017

As active managers we find ample interesting and high-quality companies that derive a significant proportion of their earnings from overseas, reducing our exposure to the uncertainties facing the UK. Our third largest holding in the Trust, for example, is a supplier of marketing materials which is listed in the UK but generates all of its revenues and profits in the US. We estimate around half of the revenues across the BlackRock Throgmorton Trust are generated overseas and only one of our top 10 holdings generate their revenues solely within the UK (BlackRock, November 2017). However, overseas investment will be affected by movements in currency exchange rates. Where we are exposed to the UK we are able to be selective. For instance we invest in the UK’s largest veterinary group, where we believe the scale advantage from being the largest player and the long-term industry trends that the company is exposed to far outweigh any near term pressures on the consumer. Moreover, people will always look after their pets.

These are just two examples of companies that we hold where we believe Brexit uncertainty and a weaker consumer backdrop should have limited impact and sterling weakness can actually benefit the company’s earnings. We believe investing in UK small- and medium-sized companies has the potential to offer investors exposure that goes beyond the UK.

All financial investments involve an element of risk. Therefore, the value of your investment and any income from it will vary and your initial investment amount cannot be guaranteed. The opinions and any forecast expressed here are those held by the author as at the time of publication, which are subject to change and are not to be taken as or construed as investment advice.

To find out more and to take advantage of the opportunities that smaller companies represent, please visit here.

Important Information: Risks

Trust specific risks: 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 stock markets 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. 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 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.

BlackRock have not considered the suitability of this investment against your individual needs and risk tolerance. To ensure you understand whether our products are suitable, please read the Key Investor Documents (KIDs) and the Annual and Half Yearly Reports available at blackrock.co.uk/its which detail more information about the risk profiles of the investments. We recommend you seek independent professional advice prior to investing.

Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.

The Company’s shares are traded on the London Stock Exchange and dealing may only be through a member of the Exchange. The Company has appointed BlackRock Fund Managers Limited as the Alternative Investment Fund Manager. SEDOL™ is a trademark of the London Stock Exchange plc and is used under licence.

Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: 020 7743 3000. Registered in England No. 2020394. For your protection telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited.

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