A partial recovery in the share price of Great Portland Estates (GPE) this month may bolster the morale of BlackRock fund managers struggling against continued outflows from the UK stock market and unjustifiable slides in some of their favoured holdings.

Fears of sticky inflation and a yawning budget deficit over the summer put most property companies and real estate investment trusts under pressure, with GPE, a £1.3bn investor in commercial property in central London sliding 25% over July and August.

For Dan Whitestone, manager of the £446m BlackRock Throgmorton (THRG) investment trust, the decline was “incredibly frustrating” taking GPE from his top position at 3.2% of assets at 31 May to ninth place on 2.5% at 31 August.

Whitestone said GPE “continues to demonstrate strong operational progress with rental growth and occupancy. We only heard from the management team in August, where they raised their rental growth guidance, and it was the most positive message and outlook statement I can recall from this highly regarded management team.

“With the shares now trading close to 50% discount to book value, we think there is outstanding value on offer so retain a position,” he said in his latest monthly commentary.

GPE was the largest faller for Throgmorton, contributing to its 2.2% decline in net asset value in August, though its shares did slightly better, off 1.2% against a 0.7% step back in the Deutsche Numis Smaller Companies plus AIM index.

It was also the biggest detractor for the £530m BlackRock Smaller Companies (BRSC) trust, whose NAV fell 2.6% last month, although it had a lower exposure to GPE at 1.7%.

“Absurd” discount

BRSC fund manager Roland Arnold said the wide discount “seems absurd for a portfolio of assets that remain near fully occupied, with positive development activities and a business that is unlikely to be impacted by the upcoming budget.”

Across all its funds, including the £40m BlackRock Income and Growth (BRIG), BlackRock holds 16.7% of GPE, so will be relieved at the 8% bounce in the shares since 2 September. After a 2% rise today, they stand at 314.5p, up 9% this year but below the June peak of 363p.

For Whitestone, GPE’s setback was annoying as it undid some of the recovery that saw the shares stand on a less egregious discount of 35% following annual results in May.

Responding to the report in June he said: “Guidance for 2026 financial year rent growth has been upgraded to 4%-7%, ‘with the best spaces even higher at 6%-10%’. Management is ahead of target having deployed the capital they raised last year from the [£325m] rights issue into high quality developments as they take advantage of a supply constrained market at a cyclical trough and committing at a 53% discount to replacement cost.

“With 40% of the book under development, the company is on track to deliver significant value in our opinion,” he said.

Nike supplier’s record results

That is a comment that can be applied to all of the Throgmorton portfolio as investors continue to avoid UK small and mid-cap stocks, fearful about the economy and possible tax rises in the November Budget.

“We remain of the view that there is compelling value on offer in the UK small and mid-cap complex but concede there are limited positive catalysts in the near term to stem the sector outflows,” said Whitestone.

He predicted private equity and overseas companies would continue to pick off cheap UK companies exacerbating a contraction in the London stock market as companies also bought back shares in an effort to defend shareholder value.   

Amid all the gloom, one stock would have put a spring in the step of Whitestone last month. Shares in Zotefoams, the provider of the high performance foam in Nike’s high-end running shoes, rallied around 50% in August, the manager said, after “record results which demonstrated impressive revenue growth and margin strength”.

As QuotedData’s James Carthew observed on Friday, Whitestone is not the only quality growth fund manager struggling. Throgmorton shares have returned just over 7% in the past five years and stand on a 9.7% discount, testament to the headwinds against his style of paying up for exceptional growth companies. However, an end to the four-year exodus from UK domestic companies would also ease the selling pressure on companies that are actually doing well at an operational level.