Portfolio Update

BLACKROCK THROGMORTON TRUST PLC (LEI: 5493003B7ETS1JEDPF59)
 

All information is at 31 October 2018 and unaudited.
Performance at month end is calculated on a cum income basis

	One Month	Three months	One year	Three years	Five years
Net asset value	-11.7	-13.8	-2.6	44.3	78.1
Share price	-13.3	-14.2	5.0	57.4	80.6
Benchmark*	-8.3	-9.4	-8.8	19.5	34.4

Sources: BlackRock and Datastream

*With effect from 22 March 2018 the Numis Smaller Companies plus AIM (excluding Investment Companies) Index replaced the Numis Smaller Companies excluding AIM (excluding Investment Companies) Index as the Company’s benchmark. The five year period indices have been blended to reflect this.

At month end
Net asset value capital only:	521.49p
Net asset value incl. income:	529.43p
Share price	475.00p
Discount to cum income NAV	10.3%
Net yield1:	2.0%
Total Gross assets2:	£387.2m
Net market exposure as a % of net asset value3:	103.0%
Ordinary shares in issue4:	73,130,326
2017 ongoing charges* (excluding performance fees)5,6:	0.9%
2017 ongoing charges* ratio (including performance fees)5,6,7:	2.2%

*Ongoing Charges: The management fee rate reductions, as detailed in the notes below impact management fees in 2017 and onwards. The impact of the new fee arrangements, assuming the same level of performance from the manager and assuming all other charges remain the same, would be to reduce the level of Ongoing Charges borne by the Company.

1. Calculated using the 2018 interim dividend declared on 26 July 2018 and paid on 29 August 2018, together with the 2017 final dividend declared on 12 February 2018 and paid on 29 March 2018.

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

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

4. Excluding 7,400,000 shares held in treasury.

5. Calculated as a percentage of average net assets and using expenses, excluding performance fees and interest costs for the year ended 30 November 2017.

6. With effect from 1 August 2017 the base management fee was reduced from 0.70% to 0.35% of gross assets per annum.

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 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).

Sector Weightings	% of Total Assets
Industrials	26.1
Financials	21.4
Consumer Services	17.0
Technology	11.8
Health Care	7.1
Consumer Goods	6.2
Basic Materials	3.0
Oil & Gas	1.1
Net current assets	6.3
	-----
Total	100.0
	=====

Market Exposure (Quarterly)
	30.11.17	28.02.18	31.05.18	31.08.18
Long	116.9	119.6	115.9	119.4
Short	6.3	8.4	10.0	9.6
Gross exposure	123.2	128.0	125.9	129.0
Net exposure	110.6	111.2	105.9	109.8

Ten Largest Investments
Company	% of Total Gross Assets
Ascential	3.3
Hiscox	2.8
Dechra Pharmaceuticals	2.8
SSP	2.8
Craneware	2.7
Bodycote	2.6
Workspace Group	2.4
Aveva	2.3
4imprint Group	2.3
Robert Walters	2.1

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

During October the Company’s NAV per share fell 11.7%¹ to 521.49p on a cum income basis, underperforming our benchmark, the Numis Smaller Companies plus AIM (excluding Investment Companies) Index, which fell by 8.3%¹; the large cap FTSE 100 Index fell by 4.9%¹ (all performance figures are in sterling terms with income reinvested).

October proved to be another challenging month for the Company. Equity markets globally experienced a sharp sell-off during month, with the UK market recording its worst monthly return in over three years. While the short book contributed a positive return of 70 basis points, this was unfortunately not enough to offset the underperformance of the long book. There was also a notable rotation away from highly rated shares (i.e. those that look expensive at face value), and higher momentum shares (i.e. those that have performed well), resulting in growth shares underperforming value. This dynamic acted as a significant headwind to performance given our growth orientated style. As the sell-off was most pronounced in growth assets like tech companies, or small and mid-caps, several of our longs fell more heavily than the benchmark without any specific negative newsflow, e.g. Fever-Tree, Integrafin, Learning Technologies and Xero.

We are also of the view that the share price falls of many of our longs was further exacerbated by the vacuum of newsflow during the month. October in the UK is always light on company specific news given there is no formal Q3 reporting season, therefore we believe this quiet period only served to heighten uncertainty over the outlook for many corporates.

It’s worth noting that where companies have reported, we have been on the right side for the majority, with trading patterns continuing to support our investment thesis, however share price falls not corresponding to the updates. YouGov for example reported a 10% upgrade however the shares fell more than 15% during the month. So despite the underperformance, this is a not a period where we can point to several shares that profit warned thereby compromising our investment theses, and where we have risked permanent loss of capital for our shareholders. As we believe the majority of the underperformance of our investments was driven by style and factors, as opposed to material negative company news or a change in the corporate outlook for a particular company of industry, we remain optimistic that long term value is not impaired and that the long book will recover with renewed trading updates over time.

Positive contributors to performance were predominantly companies that simply outperformed the falling market, however we did also benefit from several short positions that issued material profit warnings and therefore saw extreme share price falls, and where we have locked in some of these gains.

A lot has been written about the cause/causes of the falls during October; rising bond yields in the US, concerns around the pace of US interest rate rises, ongoing trade conflict between the US and China, and Brexit related concerns to name a few. Regardless of the initial catalyst, it is now far more important for us to determine what the implications are for global economic growth and what, if any, impact there will be on the earnings power of our investments.  We still view October more as a correction than the start of a bear market or sustained GDP (Gross Domestic Product) weakness, and think there remains enough growth out there for differentiated companies to prosper. As such, overall portfolio positioning remains broadly unchanged. Given the increased level of market volatility we have deliberately reduced the portfolio’s gross and net exposure, and we have also used volatility to add to a number of our holdings where we believe that recent share price moves, do not reflect the performance of the underlying businesses. For example we have added to our holdings in Aveva, Craneware and Dechra Pharmaceuticals.

¹Source: BlackRock as at 31 October 2018

29 November 2018

ENDS

Latest information is available by typing www.blackrock.co.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.