Investors should consider purchasing shares in BlackRock Throgmorton before its share price recovers, according to a new research note from QuotedData.
The £565m trust is trading 10.8% below its net asset value (NAV), but that could shrink substantially when the conditions for UK small and mid-cap companies improve later this year.
David Johnson, senior investment analyst at QuotedData, said: “With both the economic and political outlooks in the UK improving, there is little logic behind the cheap valuations of Throgmorton’s holdings, or its historically wide discount to NAV.
“There is the opportunity for significant mean reversion as economic certainty improves and a period of difficult politics comes to a close.”
The end of the UK election in July could bring some much-needed steadiness to the UK equity market, which has been plagued by political volatility.
Johnson said a Labour victory – which looks likely according to the latest polling figures – could create “greater stability by bringing to an end to the revolving door of Prime Ministers that the UK has seen under the Conservatives in recent years”.
This, paired with easing inflation and interest rates, could spell a turning point for the much-berated UK market, especially for smaller companies.
See also: Are there glimmers of hope for UK Smaller Companies funds?
But why should investors buy shares in Throgmorton as opposed to other investment trusts specialising in the asset class? Kepler investment trust research analyst Nicholas Todd said the impressive track history of manager Dan Whitestone should give the trust an advantage when conditions improve.
Since he took charge of the trust in 2015, returns peaked at 295.1% before the downturn in 2021, at which time it was charging a substantial 151.7 percentage points ahead of its peers in the IT UK Smaller Companies sector.
When the market environment becomes more favourable for UK small-caps, Throgmorton could reassume its place as a leading investor in the space. Todd noted that Whitestone’s expertise in finding quality companies has delivered “superior long-term performance”.
“This resilience has been demonstrated over 2023 and contributed to Throgmorton’s rebound in performance,” he added.
“Given that it has traded at a premium to NAV in the past, we also believe the current discount and Dan’s optimistic approach to gearing should also provide an added kicker to returns, should sentiment improve.”
See also: BlackRock launches global small-cap fund
