Investment trusts

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.
Kepler: As at 1 January 2022.

Awards/Ratings have not been superseded to date.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

31 May 2023

Comments from the Portfolio Manager

Please note that the commentary below includes historic information in respect of the performance of portfolio investments, index performance data and the Company’s NAV and share performance.

The figures shown relate to past performance. Past performance is not a reliable indicator of current or future results.

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 company we bought back into very recently (having sold some years back) thinking the sell-off had gone too far and a challenging advertising outlook has already been priced into the shares which were around <7x current year’s earnings. Since purchase, the company downgraded guidance at its recent H1 results by 7% as several of its key websites in the US are seeing lower than anticipated traffic. We acknowledge that this is worse than our expectations but thought this had been partly priced in and certainly didn’t merit the subsequent additional 30% fall in the share price seen since results as we think these headwinds are cyclical rather than structural. With the shares trading on 5x price to earnings for this current year we think the shares are grossly undervalued and have continued to add to the position, effectively doubling the size of it in the fund. Shares in RS Group were down during the month after the company reported full year results highlighting a more downbeat outlook as a result of the challenging economic environment.

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%.

Source:
Unless otherwise stated all data is sourced from BlackRock as at 31 May 2023.
 ¹ Datastream as at 31 May 2023

Any opinions or forecasts represent an assessment of the market environment at a specific time and are 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 UIL Limited, its subsidiary UIL Finance Limited and Quilter plc. He is also the Non-Executive Chairman of JP Morgan Japanese Investment Trust plc and Quilter Financial Planning. Mr Samuel was formerly a Non-Executive Director of the Alliance Trust plc. 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 a Non-Executive Director of Pacific Horizon Investment Trust plc and Dunedin Enterprise Investment Trust plc, where she is also Chairman of the audit committees, as well as a Non-Executive Director of 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 and is currently a Non-Executive Director of Murray Income Investment Trust plc. She is also a former Non-Executive Director of Baillie Gifford Shin Nippon Public Limited Company and Netwealth Investments Limited.

Glen Suarez was appointed to the Board on 9 January 2023. He is an experienced director, having held both executive and non-executive roles. He is currently a non-executive director of Impax Environmental Markets plc and chairman of the board of Knight Vinke Asset Management. He is a senior adviser to FMAP Limited, a consultancy founded by Lord Maude which advises governments on the implementation of public sector reform. Glen was chairman of The Edinburgh Investment Trust plc until July 2022 and was a committee member and co-chair of the Capital Markets Advisory Committee, an independent body advising the IASB on accounting issues and standards between 2014 and 2020. Before this, he was a Partner in Soditic Limited and prior to that he was head of European energy, infrastructure and utilities investment banking business at Morgan Stanley. He is a Fellow of the Institute of Chartered Accountants in England and Wales and a member of the Royal Society of Arts.

Our approach to ESG

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.

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 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 its investment objective and policy and in the best interests of the Company’s investors. The Investment Manager’s Risk and Quantitative Analysis group will review portfolios, in partnership with the portfolio managers, 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 investment strategy or exclusionary screens has 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.