Investment trust bargain hunter: reliable outperformer on 20% discount

An investment trust that has a strong long-term track record of outperforming its benchmark has seen its discount widen from 15 to 20 per cent over the past month 

Like other smaller company focused trusts, BlackRock Throgmorton (THRG) endured a tough spell in the first couple of trading days following the Brexit vote on 23 June. The trust swiftly fell into the red and by the start of July those who bought and sold at the worst possible time would have lost 15 per cent. Considering its portfolio comprises over 100 holdings, such heavy falls in such a short space of time are dramatic. 

But when the dust settled and investor nerves eased, the trust managed to regain its poise and by the middle of August its share price had recovered. Those who held their nerve and stayed the course will have seen share price returns of 21.8 per cent on a one-year view, slightly lagging rivals: the average smaller company trust is up 23.3 per cent over the same timeframe, despite the EU referendum aftermath. 

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More often than not, though, THRG has outperformed its benchmark, the Numis SC Plus AIM Ex Investment Companies index. According to Winterflood, the investment trust broker, on a net asset value (NAV) basis the trust has beaten its benchmark in seven of the last 10 calendar years, with 2007, 2008 and 2016 being the three exceptions. 

As things stand today the discount is at its widest level since December 2016. The 19.8 per cent discount on offer is wider than its 17.8 per cent one-year average.  

Managed by Mike Prentis, THRG achieved Money Observer Rated Fund status in 2017. 

Stockbroker Killik thinks THRG’s current discount has entered bargain territory.

In its daily note (3 April) the firm said: ‘THRG shares currently trade on a 20 per cent discount to NAV, representing a wider discount to the average sector peer, despite strong NAV performance over the last year. In the company’s last set of annual results, published in February, the board noted that they were carefully monitoring the level of discount of the company’s shares and set out the intention to consult and discuss with shareholders on a number of potential options to address it (including the quantum and timing of the dividend paid to shareholders). 

‘The widening discount reflects some of the economic challenges potentially facing smaller UK businesses in the coming years but, on a discount basis, represents an entry point at a historically attractive level for long-term investors.’ 

One distinctive feature is the fact that the trust can invest up to 30 per cent of its assets in contracts for difference (CFDs). This part of the portfolio has been managed by Dan Whitestone since 2015. The CFDs are used to add to the trust's exposure to companies it already holds, or to short-sell shares in companies its managers expect to fall. They can therefore add value in falling and rising markets.

- Our investment trust bargain hunter archive can be found here

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