BlackRock Smaller Companies (BRSC) aims to grow capital over the long term by investing in a portfolio of UK listed smaller companies. The trust has an exceptional long-term track record relative to the benchmark, outperforming in each of the past ten calendar years, as we discuss further in the Performance section.
The manager, Roland Arnold, pays particular attention to growth companies which have the potential to become market leaders in their fields. As such, he favours companies towards the smaller end of the market cap spectrum. The portfolio is one of the most diversified in the UK Smaller Companies sector, with close to 130 stocks. The holdings come from a wide range of industries with diversified sources of revenue, and many of them have an international element to their revenues.
Over the past five years the trust has delivered NAV total returns of 42.7%, compared to 7.1% from the benchmark, and 28.1% and 23.8% respectively from the IA and AIC peer groups. Although the trust has been unable to generate positive returns in 2020, it has held up well in comparison to the rest of the sector. This has principally been due to the high quality, growth focus of the underlying companies, as well as the well diversified approach to risk employed by Roland.
Although capital growth is the main focus, the trust also has a strong history of dividend growth. Currently yielding 2.5%, BRSC has grown its dividend at a rate of 21.1% over the past five years.
Currently (as at 07/05/20) the trust is trading at a discount of 1%.
BRSC has an exceptional long-term record of outperformance relative to both the benchmark and peer groups. Roland became sole manager a year ago, having been co-manager since 2018; and although he has only been the sole manager for a year, little has changed in the trust’s approach to stock selection.
We believe BRSC’s diversified approach to single stock risk is particularly attractive in the current uncertain environment. The trust has dramatically outperformed its peers and the benchmark in falling markets over the past decade, and we attribute this in part to its sensible diversification among companies, sectors and economies. However, the trust still retains a focus on high growth companies, which has helped it outperform in many rising markets too. BRSC performed relatively strongly through the recent market downturn – triggered by the coronavirus pandemic – due to outperformance by its favoured growth stocks. Given its diversified blend of high quality growth companies, we think the trust could be in a good position irrespective of whether markets fall or rebound.
Due to its strong performance in both rising and falling markets, the trust is trading at discount of 1.0%.
|Excellent long-term performance in both rising and falling markets||In bear markets high levels of gearing could drag on performance|
|Well diversified approach helps protect capital in the current uncertain conditions||UK Smaller Companies continues to be one of the most out-of-favour sectors|
|Relatively low ongoing charges fee||Highly diversified portfolios require more ideas to be successful|