Mike Prentis’ change of strategy within his £359m BlackRock Throgmorton trust appears to have paid off, following a loss last year the trust has now recovered.
In the second quarter of 2014 the trust made a loss of 1.3 per cent, leading Prentis to switch his focus in the fund to growth-oriented companies. It paid off, with the fund returning 3.6 per cent by the end of August this year.
Last year’s loss was a result of “stock specific issues” mainly caused by a disappointing share performance from internet media company Blinkx, which Prentis has since sold. “We sold that position completely, buying into more growth-oriented companies and that made us regain 3.6 per cent in nine months.”
Prentis started managing the trust in June 2008 taking over the management from Axa Framlington after the departure of manager Roger Whiteoak and a period of poor performance.
After the manager switch, Prentis says the differentiating feature of the trust, which invests primarily in UK smaller and medium-sized companies, is that it has two sources of performance: a traditional long-only portfolio and a long-short section comprised of contracts for difference.
The CFD section represents approximately 30 per cent of the company’s net assets.
Prentis says: “We thought we had a more innovative approach by having two portfolios in one trust.
“If circumstances change we can position the portfolio to short or vice-versa. When we put that into practice in 2008 when the markets went down and we switched into short positions to protect the portfolio.
“However, our approach to risk is very important. We have about 150 long positions and 40 short positions and none of the companies we hold has an exposure in the fund larger than 3 per cent.”
The approach has delivered modest returns over the past six months, and the Throgmorton trust has just edged ahead of the UK Smaller Companies sector returning 12.6 per cent against 11.7 per cent.
In the current volatile market Prentis believes betting on growth-oriented companies will give the trust a greater source of income.
He says: “These growth-oriented companies are very profitable and in the last six months they paid up to 37 per cent of dividends.”
Presently, the largest holding is CVS Group, which makes up 2.6 per cent of the trust. “It is a veterinary surgery group with more than 270 practices. We have been holding it for five years and have increased the position over time.”
With his positive outlook on the UK economy, Prentis says as people “spend more money” he is also keen on consumer-facing companies, which make up most of his top holdings in the trust.
Within the CFD portfolio, the top five positive contributors were all long positions including names such as JD Sports, 4imprint, Cineworld, Robert Walters and Betfair, with gains over August ranging from 0.06 per cent to 0.09 per cent.
Small and mid-cap stocks have outperformed of late, prompting some to tip the peak of the market. But Prentis thinks they still have some way to go. This is a natural stance for a small cap manager: Prentis is also manager of the £538m BlackRock Smaller Companies Trust having been at BlackRock for the past 10 years.
Prentis says: “We are positive about small-caps outperforming large-caps. Many smaller companies are doing very well and are benefitting from a economic background in developed markets such as the UK, US and Western Europe.”
However, Prentis remains very cautious on emerging markets as well as commodities, where he sees “great uncertainties”.
He says: “We keep being underweight oil and gas. We had some holdings but those were carefully picked because we don’t want to avoid the sectors as there are still companies performing well.”
He owns Faroe Petroleum, an oil producer operating in the UK and North Sea, as well as Amerisur Resources, an onshore Colombian oil producer “with a very strong balance sheet”.
He says: “These companies are going to survive though their share price is very low.”