BlackRock Throgmorton says that, during the year to 30 November 2016, the Net Asset Value per share returned 7.3% compared with a return of 6.3% from the benchmark, the Numis Smaller Companies excluding AIM (excluding Investment Companies) Index. They are paying a total dividend for the year of 7.50 pence per share, an increase of 11.9% on the total dividend distributed to shareholders last year. As part of a review of how to manage the fund’s discount, the Board intends to consult and discuss with shareholders a number of potential options designed to assist with this, including reviewing the quantum and timing of the dividend paid to shareholders.
Managers’ report – CFD portfolio
The managers’ report says that 2016 was a strong year for the CFD portfolio, adding 2.5% to the NAV. The long CFDs generated 2.6%, helped by some of the portfolio’s key holdings delivering, and whilst the performance of the short CFD book was -0.1% it should be noted that three of the top fifteen contributors to the CFDs year-end performance were indeed shorts, and the flat performance from the short book should be viewed in the context of a rising market, with the benchmark delivering a 6.3% return.
2016 proved an eventful year, dominated by big global macro events. This was another year where the long CFD portfolio’s largest holdings delivered (JD Sports, MicroFocus, RPC Group, CVS Group) responding to several positive trading updates through the course of the year. they still own all of these, with the exception of MicroFocus which they had to sell on it entering the 100 index, and remain very confident on their prospects entering 2017. As for the short book, the fact that three of the portfolio’s biggest contributors are shorts, reminds them of the dispersion of returns within small and mid-caps and the value in identifying companies and industries facing structural pressures. Whilst the performance of the short book, in aggregate, was -0.1%, they think this is a strong outcome in the face of a rising market.
Positive contributors – long portfolio
Within the long only portfolio they saw excellent performances from a number of their holdings with Fevertree Drinks, JD Sports, CVS Group, Hill & Smith, 4imprint and Accesso Technology each contributing more than 0.5% to relative performance. Fevertree continues to grow strongly, helped by a focus on new product development and good international distribution. Fevertree is competing effectively in a large global market in which it still has a small share for its superior premium mixers. JD Sports has continued to show strong like-for-like growth in its UK stores, helped by good relationships with the global brands whose products it sells. It has opened more large stores in European cities and most recently its first store in Malaysia. they expect further growth both from existing stores and as JD expands its international footprint.
CVS Group continues to trade strongly, with most recent disclosed like-for-like sales growth of 6.3%. It has continued to carry out acquisitions of veterinary practices and ancillary activities, recently expanding into the Netherlands. Hill & Smith is benefiting from increased infrastructure spending, especially road widening. It has a good presence in the UK and the US, both countries where it is believed infrastructure spending is likely to increase. 4imprint has completed its them factory expansion and is ready to grow further in the US; strong them GDP growth should encourage its customers to maintain or increase their spending on promotional products, and 4imprint should continue to win market share. Accesso have continued to win new customers for its ticketing and virtual queuing solutions, and these are being rolled out globally.
Other investments which performed strongly in the year include Keywords, shares in which more than doubled, Trifast and Scapa Group.
Negative contributors – long portfolio
The biggest headwind to relative performance in the long only portfolio was their underweight position in mining stocks. Several large mining stocks joined their benchmark in January 2016 and have subsequently performed very strongly, for example Evraz and Vedanta. Share prices of both more than trebled during the year, their underweight sector position detracted 3.4% from relative performance over the financial year.
The other major headwind was BREXIT and the impact that this had on UK domestic consumer and real estate stocks. their holding in Topps Tiles detracted 0.8% during the year and holdings in Lookers and Vertu also proved painful. These stocks have all been savagely de-rated in expectation of tougher times ahead. their holding in Workspace detracted 0.7% from relative performance; its shares are now trading at a discount to NAV of more than 20% despite the fact that it offers tenants flexible space at a time when they may be reluctant to commit to conventional longer leases. Workspace’s occupancy remains high, rents remain low, loan to value is historically low, and its portfolio is valued on a conservative passing yield.
THRG : BlackRock Throgmorton says CFD portfolio added 2.5% to performance