BlackRock Throgmorton Trust plc (LON:THRG) is the topic of conversation when QuotedData’s Head of Investment Companies Research James Carthew caught up with DirectorsTalk for an exclusive interview.
Q1: BlackRock Throgmorton Trust, what is it trying to achieve?
A1: This is a UK smaller companies trust so it’s trying to grow investors capital by investing in UK small and mid-cap companies and it benchmarks itself against the Numis Small Companies Index and that includes AIM.
When we wrote the note on the trust, it had delivered twice the return of the Index over the past five years so 90% against 49% for the Index. Couple that with the fact that it’s managed to eliminate its discount as well, shareholders end up with a return of over 120% so it’s not surprising it’s a popular trust.
Q2: Now, Dan Whitestone, the trust’s manager is very excited about the prospects for the trust, why is that?
A2: A bit part of what Dan is trying to do is to identify high quality and growing companies and he think that by analysing the ways in which institutes are changing and evolving, he can spot likely winners and losers.
One of the things that’s got him excited is COVID and the lockdowns that we’ve experienced last year have been accelerating the pace of change in many industries. So, there’s a whole raft of examples but when you just think about the shift of retail from physical to online, it was happening anyway but it’s been accelerated by COVID. The adaptations we’ve had to make for working from home, that’s another big thing, things like Zoom, and a shift to online education so one of the stocks in that portfolio is a thing called Chegg and that’s been a great winner from that shift to online education.
So, those sorts of things, he thinks are going to carry on going for quite some time yet.
Q3: The trust is a growth-focused trust but value stocks have been rallying, aren’t these the place to be now, would you say?
A3: It’s quite hard to say how persistent this value rally is going be so some of the stocks that were classified as value stocks have become very unloved and therefore very cheap, however many are cheap for good reasons so they face quite severe long-term challenges and some of those might not survive those.
We’re really talking about the same situations as the other side of the things, all the winners that we were talking about a minute ago, retail, working from home and online education.
So, we’d be very wary about buying these stocks just because it looks cheap and also, I think it’s worth bearing in mind that even though we see some light at the end of the tunnel for COVID and lockdowns, the economy is not quite out of the woods yet. So, some of these companies, they still might be struggling.
Q4: Now, Dan can short shares that he doesn’t like the look of, what’s the attraction of that?
A4: This is just another for Dan to make money, something that’s unusual within the investment trust sector and we think it’s part of the attraction to this trust. So, it’s an actual part of his investment style so by identifying winners, he also identifies the companies that are likely to be the losers as well.
Having said that, it’s quite dangerous sometimes to short individual stocks, sometimes they end up being big targets and you end up with it shooting up in price.
So, what he does instead is if he sees a group of stocks that are likely to be losers, he’ll had a spread of those and short those and the other thing is it’s quite counter-productive to try and buck the market so if the market is clearly going up, there’s not much point having short positions.
At the end of November, which is their data we used to write the note, he didn’t have an awful lot of short positions, when he thinks the market is looking toppy, the actual buck might be a bit bigger.
Q5: The trust’s shares are trading at a premium, do you think that is sustainable?
A5: The premium rating is to just really a reflection that there’s more buyers than sellers and we think that’s probably the consequence of the good performance track record.
What the trust has been doing is issuing stock to stop the premium becoming too big and that’s quite important because if the premiums get too large and the sentiment turns you will see quite a shock for the share price.
So, they’ve stopped that happening, I think at the moment they’re trading at a 1% premium and then because they were issuing the stock, they’re going to feel a bit more comfortable about buying back stock if the shares go to a discount.
We don’t think the trust is going to shift trading at a discount any time soon but if it does, it shouldn’t be anything that’s too worrying.
Q6: The trust has been issuing shares, is that good news?
A6: Yes, definitely because that then helps them improve the liquidity of the shares and that in itself is one thing that helps keep the shares trading close to asset value.
The bigger these funds get, the more institutional type buyers it may attract so that’s just another source of demand for them and that again, is going to help that premium rating.
If the trust gets bigger, it helps to lower what we call the ‘ongoing charges ratio’ which is a measure of how much it costs to run the trust on an annual basis so for BlackRock Throgmorton Trust, that’s 0.6%. That’s the second lowest of any trust in the sector so the bigger it gets, the more the fixed costs spread over a wider base so all good news.
To learn more about the Trust please follow this link: blackrock.com/uk/thrg