Investors seeking to position portfolios for a rally in small and mid cap stocks should buy BlackRock Throgmorton Trust (THRG), a fund with a strong long-run performance record trading at a 7.2% discount to net asset value (NAV), wider than the 4.7% 12-month average.

The sell-off in quality growth stocks caused by rising interest rates has been a headwind for the portfolio, but Shares sees manager Dan Whitestone’s stock picking skills, ongoing positive performance and a peak in interest rates offering combined catalysts for a narrowing of the discount at BlackRock Throgmorton, which should benefit strongly once UK mid and small caps swing back into favour.

Despite headwinds to performance from sticky UK inflation and higher rates, Whitestone has remained unwavering in his commitment to differentiated growth companies and industry disruptors that are winning market share and he continues to see good value within the UK small cap universe. Uniquely for a smaller companies trust, BlackRock Throgmorton allows Whitestone to short weak companies, such as those disrupted by industry change.

Admittedly, BlackRock Throgmorton has seen a relatively quiet period recently with NAV up a mere 0.1% in the six months to May 2023. Nevertheless, performance was still ahead of the Numis Smaller Companies plus AIM (excluding Investment Companies) benchmark’s 2.4% decline and the FTSE 250 trust’s 10-year share price total return of 158.5% is comfortably ahead of the
95.6% from the AIC’s UK Smaller Companies sector and the 48.5% total return from the Morningstar UK Small Cap index.

Importantly, earnings remain strong for many of the companies within Whitestone’s portfolio of ‘best of breed’ companies with the strong balance sheets and financial resilience to weather the storm, with industrials and consumer discretionary the two biggest sector weightings at last count. For instance, fantasy miniatures maker Games Workshop (GAW) has continued to grow sales and profits ahead of expectations, homewares leader Dunelm (DNLM) is gaining market share while science kit maker Oxford Instruments (OXIG) has maintained its record of beating expectations and raising guidance.

Other holdings including Breedon (BREE), Grafton (GFTU), Gamma Communications (GAMA:AIM), Ergomed (ERGO:AIM) and Morgan Sindall (MGNS) have continued to de-rate despite upgrades, allowing Whitestone to top up on weakness.

New portfolio additions range from Intermediate Capital (ICP) and SIG (SHI) to Future (FUTR) and Crest Nicholson (CRST). One point worth noting is BlackRock Throgmorton’s fee structure, with ongoing charges of 0.54% including a performance fee in addition to what is a low 0.35% base fee, which adds a little complexity to charges. However, whichever way you stack them up, the costs are competitive with similar funds.

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