BlackRock Throgmorton Trust Plc - Portfolio Update

The information contained in this release was correct as at 31 January 2025.  Information on the Company’s up to date net asset values can be found on the London Stock Exchange Website at:

https://www.londonstockexchange.com/exchange/news/market-news/market-news-home.html. 

BLACKROCK THROGMORTON TRUST PLC (LEI: 5493003B7ETS1JEDPF59)
 

All information is at 31 January 2025 and unaudited.
Performance at month end is calculated on a cum income basis

Sources: BlackRock and Deutsche Numis

*With effect from 15 January 2024 the Numis Smaller Companies plus AIM (excluding Investment Companies) Index to Deutsche Numis Smaller Companies plus AIM (excluding Investment Companies).

1. Calculated using the Final Dividend declared on 05 February 2024 paid on 28 March 2024, together with the Interim Dividend declared on 24 July 2024 paid on 21 August 2024.

2. Includes current year revenue and excludes gross exposure through contracts for difference.

3. Long exposure less short exposure as a percentage of net asset value.

4. Excluding 20,734,000 shares held in treasury.

5. The Company’s ongoing charges are calculated as a percentage of average daily net assets and using the management fee and all other operating expenses, excluding performance fees, finance costs, direct transaction charges, VAT recovered, taxation and certain other non-recurring items for the year ended 30 November 2023.

6. With effect from 1 August 2017 the base management fee was reduced from 0.70% to 0.35% of gross assets per annum. The Company’s ongoing charges are calculated as a percentage of average daily net assets and using the management fee and all other operating expenses, including performance fees, but excluding finance costs, direct transaction charges, VAT recovered, taxation and certain other non-recurring items for the year ended 30 November 2023.

7. Effective 1st December 2017 the annual performance fee is calculated using performance data on an annualised rolling two-year basis (previously, one year) and the maximum annual performance fee payable is effectively reduced to 0.90% of two year rolling average month end gross assets (from 1% of average annual gross assets over one year). Additionally, the Company now accrues this fee at a rate of 15% of outperformance (previously 10%). The maximum annual total management fees (comprising the base management fee of 0.35% and a potential performance fee of 0.90%) are therefore 1.25% of average month end gross assets on a two-year rolling basis (from 1.70% of average annual gross assets).

Commenting on the markets, Dan Whitestone, representing the Investment Manager noted:

The Company returned 0.2% in January, underperforming its benchmark, the Deutsche Numis Smaller Companies +AIM (excluding Investment Companies) Index, which returned 1.0%.1

Global stock markets started 2025 strongly and despite three significant wobbles ended the month in positive territory. First, we had to navigate a sizeable bond sell-off as hawkish data pushed the UK 10-year bond yield to a +10 year high of +4.9% whilst the 10-year treasury yield hit 4.8% before both retraced on softer inflation prints. Second, the leftfield arrival of Deepseek’s new Artificial Intelligence (AI) model created some large existential questions on the valuations across a swathe of US technology leaders (NVIDIA lost +US$600 billion of value in a single day) not to mention consternation over the quantum of AI related capital expenditure and expected returns. Third, the growing spectre of a global tariff escalation as the new Trump administration moved to announce tariffs on Canada, Mexico and China.  It’s incredible to think this all happened in the space of only one month, so if January is anything to go by, we are set for one extraordinary year. January proved once again a challenging month for the portfolio as persistent outflows and concerns over the health of the UK economy continued to weigh on UK small and mid-cap shares.

Rotork rose in response to H1 2024 results. Despite tough comps, the company delivered c.20% in their Oil & Gas and Power & Water divisions with a good margin performance driving a low single digit beat and more than offsetting the weakness in Chemical, Process and Industrial, driven by weakness in China. Guidance remained unchanged and the shares are currently trading on around 19x P/E (price to earnings ratio) 2025. LED lighting and wiring accessories supplier, Luceco, reported strong sales growth in the final quarter of 2024 with upgrades to full-year guidance, reflecting strong demand for its products, positive product mix and operational efficiencies. Recent acquisitions are integrating well the business is well placed to accelerate in 2025. The UK’s leading bathroom retailer, Victorian Plumbing, reported solid full year results that outperformed the wider RMI (repair, maintenance and improvement) market. The company’s brand strength and extensive product range saw positive order volume growth, while a mix shift to own branded products was beneficial to gross margins. Despite the challenging environment, and a cautious approach to marketing at the beginning of its financial year, the company has seen HSD (high single digit) growth in December and will continue to direct marketing spend through 2025 to continue to drive order volumes.

The biggest detractor was a short position in a UK listed semiconductor business that squeezed through the month. The company did announce record “bookings” in January (a metric that we have repeatedly expressed caution and a healthy degree of cynicism towards) in an otherwise brief statement with the only other important feature of note was confirmation that revenues would be at the lower end of guidance! The lack of progress on revenues, “ebitda” (earnings before interest, taxes, depreciation and amortization) and cash makes us very sceptical and we retain our short. Shares in Gamma Communications fell after announcing strong results and a large acquisition in Germany. In absence of the acquisition, we think the shares would have responded very well, but all the focus is clearly on this transformative deal in Germany where Gamma has acquired a sizeable channel-led SME (small and medium-sized enterprise) customer base with proprietary cloud telephony software and hardware. There’s quite a lot to digest here, and whilst we are fans of management and don’t necessarily disagree with the strategic rationale, we do think it changes the risk profile of the investment case and we have moderated our position accordingly. Shares in Trainline fell on the news that Department for Transport will soon begin a consultation process on the Rail Reform Bill, designed to establish Great British Railways (GBR) as the governing body for passenger rail.

It’s easy to bash the UK right now, so trying to make a constructive case for UK small and medium sized companies is not without its challenges!  Valuations are undoubtedly cheap, as I am sure every UK small and mid-cap fund manager has been telling you, but this valuation argument has been true for some time and isn’t sufficient to turn the tide on sentiment and flows. Only PE (private equity) and Corporate bidders are taking full advantage of the valuation opportunity right now in my view.

But before we get too despondent and talk ourselves into a bearish frenzy, we should put some of the data into context: UK construction PMIs (purchasing managers index) may have come off the peak, but are still the strongest in Europe; mortgage volumes may have fallen 3.5% month on month in November, but were up in December 2024 and ended the year +40% (compare this with three consecutive months of -10% following the Truss mini-budget); aggregate employment is still strong (even as forward looking indicators moderate); Asda's Disposable Income Tracker is still growing roughly 10% on an annualised basis; and the savings rate is still above 10%, significantly higher than the pre-covid 20-year average of 7%; service sector PMIs remain hovering above 50, even as business confidence has fallen. Lastly, and perhaps key, is that the Bank of England's own view on inflation is much more sanguine than financial markets, leaving more scope to cut faster than currently expected particularly as growth weakens.

This along with the simple fact that several industries have effectively been in a volume recession for three years (think cement, housing starts, bricks, various industrial widgets, consumer electronics) a deep recession in the UK we think is unlikely, but our hopes for a V-shaped recovery in 2025 have been squashed.

The base case now is a return to the environment of 2023, subdued demand and anaemic growth. Downside risks from a further fiscal misstep or further punishment by the bond market are clear. Even in this tough environment we shouldn’t lose hope or rip up a longstanding tried and tested investment philosophy and process - we will continue to seek idiosyncratic investment opportunities where we see a compelling runway for growth and an asymmetric risk/reward opportunity right now, even though there may be more clouds on a short-term horizon. In many cases the valuations of what we consider to be the highest quality UK domestic assets are back at trough levels and very attractive on a medium-term view and trading remains solid despite the backdrop. We remain alive to the data and more importantly what companies are telling us and will adjust our positioning accordingly.  In conclusion, we remain conscious of the challenging outlook for the year ahead and that is reflected in a gross exposure that is now down to around 110%, and a net exposure that is around 105%.

We thank shareholders for your ongoing support.

1Source: BlackRock as at 31 January 2025

20 February 2025

ENDS

Latest information is available by typing www.blackrock.com/uk/thrg on the internet, "BLRKINDEX" on Reuters, "BLRK" on Bloomberg or "8800" on Topic 3 (ICV terminal).  Neither the contents of the Manager’s website nor the contents of any website accessible from hyperlinks on the Manager’s website (or any other website) is incorporated into, or forms part of, this announcement.