Stronger together

BlackRock Throgmorton (THRG) and BlackRock Smaller Companies Trust (BRSC) have published proposals to combine the two trusts, with the aim of creating a larger, more liquid, and lower-cost entity. The intention is for the enlarged trust to be co-managed by BRSC’s Roland Arnold and THRG’s Dan Whitestone, who both have significant experience in the UK smaller companies sector. The boards of both trusts believe the combination will provide a platform for future growth.

The two portfolios already have a good degree of alignment, with 75% overlap of stocks, which should make for a relatively smooth transition. A reduction in the management fee is expected to contribute to a lower ongoing charges ratio of almost 20bps to 0.63%, which should make it one of the most competitive in its peer group.

The proposal includes other initiatives, such as a performance-related tender offer every three years, and would also result in Saba being removed from the register.

Portfolio of UK small- and mid-cap companies

THRG aims to provide shareholders with capital growth and total return by investing primarily in UK smaller and mid-cap companies traded on the London Stock Exchange.

The merger proposal

On 20 February 2026, the boards of both BlackRock Throgmorton (THRG) and BlackRock Smaller Companies (BRSC) announced proposals to merge the two UK smaller companies trusts. The plan is for BRSC, which is slightly larger, to absorb THRG through the voluntary winding-up of the latter, with new shares issued to THRG investors that elect to roll their investment into BRSC. Shareholders in both trusts will also have the option to realise a proportion of their shareholding in cash.

This note examines the details of the proposal, the potential outcomes for the new enlarged company, and some factors that shareholders may wish to consider before voting on the plans.

Rationale

Both THRG and BRSC has outperformed their benchmark over the longer term

The proposal followed a review by THRG’s board, which was focused on driving long-term value after a period of weaker performance that occurred after interest rates increased in 2022 and appeared to reduce investor interest in growth and UK investment strategies. Prior to this period, both THRG and BRSC had a track record of outperforming the Deutsche Numis Smaller Companies plus AIM (excluding Investment Companies) benchmark, as shown in Figure 1.

Figure 1: THRG and BRSC 10-year NAV total return performance versus benchmark¹ to 31 January 2026 (rebased to 100)

Over 10 years to the end of January 2026, THRG and BRSC delivered NAV total returns of 129% and 97% respectively, compared to the benchmark’s 86%.

Enlarged entity expected to have net assets of £780m

Combining the two trusts, which the managers say have comparable investment approaches and a significant level of portfolio overlap, would create an enlarged entity with net assets of around £780m (assuming full take-up of the respective cash exits – more detail on page 5). The rationale is that this should help to improve liquidity in shares from the current level of both companies and could give the enlarged trust more flexibility in controlling its discount – which has averaged 9.7% for THRG and 12.3% for BRSC over the past 12 months.

Long-term prospects

As mentioned, the UK smaller companies sector has faced headwinds over the last few years. UK companies have derated and this has impacted the short-term performance of both trusts. However, both companies believe the sector continues to display robust fundamentals and good long-term growth prospects.

With valuations at historically low levels and several potential cyclical and structural factors showing signs of emerging, including easing interest rates and ongoing corporate and private equity interest in the UK market, the enlarged company may be in a position to benefit from any change in sentiment towards UK smaller companies.

To be co-managed by Roland Arnold and Dan Whitestone

As stated on the front page, the combined company will be co-managed by BRSC’s manager, Roland Arnold, and THRG’s Dan Whitestone. This arrangement is intended to provide continuity for both sets of shareholders and to bring together two managers who are experienced in managing UK smaller companies funds.

Roland, who has 20 years’ experience investing in UK small- and mid-cap companies, will have the final decision over positioning in the portfolio of the enlarged company. Dan, a fund manager with a track record and experience in investing in UK listed small- and mid-cap companies as well as emerging companies across international developed markets, will support Roland through ongoing stock and industry level research.

Progressive dividend to be paid quarterly

The enlarged company’s dividend policy is expected to build on the track record delivered by BRSC, which has increased its annual dividend every year since 2003 and has achieved AIC “Dividend Hero” status. Dividends are proposed to be paid on a quarterly basis, rather than the current bi-annual payment.

It is intended that THRG board members Angela Lane and Louise Nash will be appointed as non-executive directors of the enlarged BRSC, bringing the board to seven members.

75% overlap in portfolios

Revision to investment policy

Consistent with the existing mandates of both companies, the enlarged trust will seek to achieve long-term capital growth through investing predominantly in UK small- and mid-cap companies. It is envisaged that there will be no major realignment of the portfolio, with 75% overlap of stocks between THRG and BRSC. The focus will continue to be on investing in companies that the manager believes have quality growth characteristics, such as management teams perceived as strong, leading market positions, pricing power, robust balance sheets, healthy margins, strong earnings growth and high levels of cash conversion.

Figure 2: THRG’s top 10 holdings at 31 December 2025

Figure 3: BRSC’s top 10 holdings at 31 December 2025

There are a couple of revisions as a result of the merger, however:

• The managers will not be able to make use of short selling stocks, a feature of THRG’s investment policy that has had limited use in recent years.

• The managers will have the ability to invest up to 15% of the portfolio in non-UK listed smaller companies (in line with THRG’s current investment policy). This will be led by Dan and focused on accessing opportunities not available in the UK (for example, in technology) that, according to management, could boost returns without increasing volatility.

No short selling, but 15% can be invested in overseas

The managers are expected to be able to make use of gearing, which under normal operating conditions is envisaged to be within a range of 0% and 15% of net assets and subject to a maximum level of 20% at the time of investment.

Deal mechanics

Cash exit facility for both sets of shareholders

The structure of the merger involves a s110 reconstruction and members’ voluntary winding up of THRG. Under the proposals, new BRSC shares will be issued to THRG shareholders based on the ratio of the formula asset values (NAV less costs) of the two trusts. The proposals include the provision of a cash exit facility for both THRG and BRSC shareholders who choose it, priced at a 1% discount to NAV, and capped at 38% of THRG’s and 28% of BRSC’s issued share capital. To fund the cash option, pools will be created comprising assets to be realised and turned into cash, which is expected to take up to eight weeks.

Saba to fully exits positions

The structure allows Saba Capital, which holds around 17.8% of THRG and 10.4% of BRSC, to fully exit its positions, for which it has given an irrevocable undertaking to do so. A standstill agreement between Saba and BRSC that is currently in place, which prevents Saba from putting forward proposals or requisitioning a general meeting, will be extended to 30 June 2030 for the enlarged BRSC.

Several other shareholder-related initiatives are proposed, including:

• a performance-related 100% tender offer every three years if the company underperforms its benchmark in that period, with the first (were it to be triggered) in 2029. This would be at a 4% discount to NAV (less costs);

• reduced management fees – the management fee payable to BlackRock would be equal to 0.5% on the first £500m of NAV, 0.475% on NAV between £500m and £750m, and 0.45% on NAV greater than £750m. This would be a reduction for both trusts; and

• the removal of the performance fee for THRG shareholders.

Reduced management fee expected to contribute to a lowering of the OCR to 0.63%

Greater cost efficiencies through scale, together with the revised management fee arrangements, are estimated to produce an ongoing charges ratio of around 0.63%. This compares with BRSC’s ongoing charges ratio of 0.8% and THRG’s average ongoing charges ratio of 0.82% (over the five years to 30 November 2025, including performance fees). This would represent the lowest ongoing charges ratio among the AIC’s UK Smaller Companies sector that does not charge a performance fee.

BlackRock has stated it will contribute to the costs of the merger by waiving its management fee for six months, which equates to around £1.9m.

Shareholders of both trusts will have the opportunity to vote on the merger at meetings scheduled for 26 March 2026 (BRSC) and 30 March 2026 (THRG), with the resolutions requiring at least 75% of votes cast in favour.

Previous publications

You can read our previous publications on THRG by clicking the links in the table.

Figure 4: QuotedData’s previously published notes on THRG

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