Clever use of "shorting" boosts gains for UK small-cap trust

January 16, 2018

BlackRock Throgmorton Trust (THRG) invests in UK mid-sized and smaller companies, primarily for capital growth. Its report and accounts for the year to 30 November 2016 show shareholders’ assets of £301 million. The trust deploys a long-only portfolio of UK equities alongside a portfolio of contracts for difference (CFD) representing around 30 per cent of net assets. The CFDs can add value in falling as well as rising markets.

Manager Mike Prentis favours firms with robust business models, strong cash flows and favourable industry characteristics that are led by 'self-helping' management teams.

Prentis generally invests a small stake in a company and adds to it as he gains con¬fidence. But he caps most holdings at 3 per cent. Constituents of the FTSE 250 index account for 33 per cent of the trust’s year-end portfolio, FTSE Small Cap constituents for 26 per cent and companies listed on Aim for 29 per cent.

The CFD portfolio combines long positions in companies favoured by the managers with short positions in firms they expect to underperform.

Helped by a 2.5 per cent net gain on the CFD portfolio, THRG’s net asset value total returns last year were 7.3 per cent, narrowly ahead of the 6.3 per cent total return from its benchmark, the Numis Smaller Companies excluding Aim (ex. investment cos) index. But over five years THRG’s NAV total returns of 118.9 per cent are well ahead of the 81.2 per cent rise in its benchmark. With the discount widening to 21.2 per cent, share price total returns were -2.1 per cent. Dividends per share were increased by 11.6 per cent to 7.5p, having grown steadily from 2p in 2006.

Ongoing charges were 1.3 per cent. Ongoing charges were 1.3 per cent including a small performance fee, but should now be more competitive following recent changes.


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