With the FTSE 100 dominated by overseas dollar earners, we see exposure to the UK’s smaller companies as the best way to position for a recovery in the UK economy.
The below trusts satisfy the mandate with a range of exciting UK-listed companies, many of whom flourished during the COVID-19 restriction period.
BlackRock Throgmorton Trust
The ‘high-conviction’ BlackRock Throgmorton Trust is managed by Daniel Whitestone who heads up BlackRock’s Emerging Companies team.
The Throgmorton Trust seeks out companies ‘with strong management teams, strong and dominant market positions’ as well as those that be classes as ‘disruptors’.
Top holdings include companies such Serco Group, YouGov, Dechra Pharmaceuticals, Games Workshop and Gamma Communications.
Games Workshop is a particular stand out after the model and games company announced a significant shift to online sales during the COVID-19 lockdown which is likely to help margins on the other side.
Gamma Communications is a holding that certainly satisfies the ‘disruptor’ element of the portfolio with its multi channel communications offering. Gamma enjoyed a 12% increase in revenue in the first half.
The fund interestingly notes that it uses CFDs to profit from falls in the share prices of companies. This typically higher risk activity can utilise leverage and provide protection against volatility in equity markets.
As at 30th June the trust had 3.9% of the portfolio allocated to various short positions.
This strategy appears to have paid off with BlackRock Throgmorton Trust up 95.9% over the past 5 years making it one of the best performing UK Small Companies Trusts.
JPMorgan Smaller Companies Investment Trust
The attraction to the JPMorgan Smaller Companies Investment Trust stems largely from the trusts focus on the UK consumer. However, with a backdrop of COVID-19 causing concerns about consumer confidence in the short-term, we see strength in the trusts exposure to specialist consumables.
The trust again holds Games Workshop whose inelastic demand from enthusiasts is unlikely to see any major problems in the near term.
It also holds Future plc, the specialist media company who commands loyal communities of users and readers with titles such as FourFourTwo, Horse & Hound and the official magazines for Xbox and Playstation. Specialist titles such as these provide contextual opportunities for advertisers meaning Future can see step much of the reduction in advertising spend associated with newspapers and more general publications.
Other consumer companies such as Dunelm and Pets at Home also fall into the specialist sector but retail exposure may mean the market asks questions of the shares going forward.
With a 14% discount to NAV, JPMorgan Smaller Companies Investment Trust provides an attractive exposure to growing UK companies that have taken COVID-19 in their stride.
