Short positions deliver for Blackrock investment trust

Trust’s NAV per share returned -2.7% compared with benchmark index’s -9%.


Short positions in Conviviality and Kier Group helped the Blackrock Throgmorton investment trust beat its index in a “challenging year” for small and mid-cap companies.

The trust’s annual results for the year ended 30 November 2018, published on Tuesday, revealed the NAV per share of the trust returned -2.7% on a total return basis, compared with the Numis Smaller Companies plus Aim index’s -9%.

According to the update, the trust’s short positions delivered a positive return of 1.4% to overall performance during the year, thanks to some significant stock-specific wins.

Conviviality and Kier Group deliver

The largest gain came from its short position in UK alcoholic beverage wholesaler, Conviviality, which entered administration in April after it issued negative profit revisions, announced an unexpected tax bill to HMRC and an increase in its net debt position, and a failed capital raise.

Blackrock Throgmorton Trust fund manager Dan Whitestone said the trust opened a short position in Conviviality after the team began to question the rationale of an extremely large acquisition.

“The deal was financed by a huge amount of debt and management claimed this would unlock significant synergies, which evidently failed to materialise,” he said. “Our position contributed more than 40bps to the return of relative performance during the year.”

Elsewhere, the trust gained from its short position in UK contracting firm, Kier Group, which fell heavily in November on the news it required an emergency rescue rights issue to strengthen its balance sheet. Last year the firm saw more than 60% wiped off its share price.

Whitestone said: “We have held a short position in this company for some time, concerned by its liabilities and weak cash generation.”

In terms of long positions, the largest positive contributor during the period was insurance company Hiscox, the trust’s largest holding as at 30 November. Whitestone said the company has benefitted from continued strong growth in its US retail business and from an improving outlook for the London market business.

Similarly, Integrafin, a UK savings platform for financial advisers, delivered strong results despite stock market volatility, as did Yougov, which Whitestone said has been successfully delivering on its strategy of expanding and developing data analytics products for specialised sectors.

Discount control

During the year to 30 November 2018 the Company’s share price discount to NAV ranged between 4.8% and 17% and ended the year at 12%. As at 8 February 2019 the discount was 5.5%.

However, the board said it is in shareholders’ interests that the share price does not trade at an excessive discount or premium to NAV and as such is seeking shareholder authority at the forthcoming AGM on 21 March to buy back up to 14.99% of the trust’s issued share capital.

Director changes

The trust board also announced that non-executive director Simon Beart is stepping down from the board after nine years at the AGM. He will be replaced by Louise Nash who has spent 16 years as a UK small and mid-cap fund manager, most recently as director of UK smaller companies at M&G Investments and previously at Cazenove Capital.

In addition, Andrew Pegge has also decided to step down from the board at the AGM due to other commitments.

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