The uncertain global economic backdrop has prompted fund manager Mike Prentis to take a defensive stance on the BlackRock Smaller Companies investment trust.
In the closed-end fund’s half-yearly report, Prentis says the trust’s exposure to sub-£100m market cap space, the Alternative Investment Market and resources companies had been “unhelpful”.
He says many of the holdings included in those areas were “very interesting growth companies” with the potential to perform strongly in “more confident markets”, but were unlikely to start performing well in the early stages of market recovery.
The fund manager says he has maintained exposure to “high quality, well managed and well financed companies”.
“However, we have reduced exposure to some holdings that are more capital spending orientated and thus exposed to delayed decision making in uncertain times,” he says.
Prentis says he has increased exposure to defensive growth companies such as manufacturer Devro, brewer Young & Co’s and Coastal Energy.
He adds: “Although we have felt more cautious we have retained our gearing. This reflects
our view that many of the problems that are regularly aired are macro-economic and that our holdings are typically able to benefit in such times at the expense of less well run, less well financed competitors.
“It remains the case that many of our holdings have net cash and few have significant net debt.”
The investment trust saw its discount narrow to 15.9 per cent in the six months to 31 August.
New chairman Nicholas Fry says the 1 per cent fall in share price during the six month period was a “reasonably satisfactory outcome” given the fund’s weighting to smaller companies.
The net asset value per share fell by 4.4 per cent in line with its Numis Smaller Companies plus Aim (ex-Investment Companies index) but has since 31 August increased by 6.6 per cent.