BlackRock Smaller Companies discount offsets strong stock selection

BlackRock Smaller Companies results for the year ended 28 February 2015 show the fund generated a return on net assets of -1.8%, much better than the 8.5% fall recorded by the Numis Smaller Companies plus AIM (excluding Investment Companies) Index. However the company’s discount widened leaving shareholders with a return of -9.2%. The dividend was increased from 12p to 14.5p.

Overweight positions in the housebuilding, health care and chemicals sectors contributed positively, as did the portfolio’s underweight position in oil producers. Positive individual contributions were made by Workspace Group, Hyder Consulting, Hutchison China Meditech, CVS Group and Avon Rubber. Workspace Group has experienced strong demand for its flexible office space most of which is located on the periphery of central London. Occupancy and rents have continued to improve and the yield at which the portfolio is valued has fallen, increasing the capital value of the properties. Hyder Consulting was acquired by Arcadis following a competitive bid process. Hutchison China Meditech develops, manufactures and markets a range of prescription and over-the-counter botanical based pharmaceutical products. Revenues and profits continue to grow well. It also has a drug research and development business which is mainly focused on developing therapies in oncology. Some of the clinical results are very encouraging and they think the potential remains significant. CVS Group own and operate veterinary surgeries around the UK. they say it is a well and entrepreneurially run business which has improved systems, buying and customer care as its scale has grown. Avon Rubber had strong results with a 30% increase in earnings per share. It continues to win new contracts both in its protection and defence business and also its milk business.

Problem holdings were Xaar, Blinkx and Boohoo. Xaar struggled to replicate past performance and saw competitors catching up. Blinkx indicated revenue growth had slowed from the high levels previously achieved. Boohoo indicated that sales for the 4 months to December 2014 were up by 25%, a good performance but below market expectations.

BRSC : BlackRock Smaller Companies discount offsets strong stock selection