The Association of Investment Companies (AIC) have just issued an interesting press release. It gives the top performing investment companies and sectors for the year to date under the headline “Technology and Media Leads the Way”.
The Technology and Media Sector was up 34%, compared with an overall average of 14% for all investment companies (excluding VCTs) in share price total return. The top performing company was Blackrock Throgmorton Trust (THRG) which is a UK smaller and mid-cap companies focused trust. It is up 49%. A quick review of how they achieved their stellar performance indicates derivatives although several other smaller company trusts were listed in the top ten. The Blackrock web site says this: “Derivatives may be used substantially for complex investment strategies. These include the creation of short positions where the Investment Manager artificially sells an investment it does not physically own. Derivatives can also be used to generate exposure to investments greater than the net asset value of the fund / investment trust. Investment Managers refer to this practice as obtaining market leverage or gearing”.
Dan Whitestone, Manager of BlackRock Throgmorton Trust, is quoted in the AIC press release as saying: “As we have long argued, stock and industry specific outcomes can triumph over the volatility created by macro, political and economic events. This certainly held true in 2019, which has been a strong year for the trust in absolute and relative terms, aided by positive contributions from both long and short positions. The management teams of the companies the trust invests in have played a key part in helping deliver value and wealth creation for shareholders, not just this year but over the course of many years.
The premium for genuine secular growth is high, as we remain within an era of low inflation, low interest rates and weaker growth. However, we see many companies with solid business models, that have enormous growth potential, are all too often dismissed by the market as expensive. Conversely, many so-called value shares are under significant pressure from the structural changes wrought by technological disruption, resulting in fundamental changes in distribution, manufacturing and customer behaviour.
Throgmorton aims to identify and own, for the long term, the exciting, fast-growing companies that we believe are truly differentiated and disruptive and taking full advantage of the structural changes reshaping industries. Our belief is that the stock market persistently undervalues these companies, which have strong balance sheets, and have been able to heavily invest ahead of their peers. Combined with solid management teams, dominant market positions, and a compelling product offering, investing in these companies can lead to years of dramatic compound growth, regardless of the wider political or economic environment.”
I can probably agree with most of what he says, but am not sure about the use of derivatives. I’m happier with the three other UK smaller companies trusts in the top ten list who all achieved more than 40% share price total return, one of which I hold. Does the cleverness of Throgmorton result in better long-term performance? It might do so if you look at the 10-year performance figures in the UK smaller companies AIC sector where it is beaten by only one other company – the Rights & Issues Investment Trust (RIII), although they seem to have a more variable performance. I may have a closer look at Throgmorton. This is definitely one where a read of their Annual Report will be essential (all 114 pages of it).
You can read the full AIC press release here: https://www.theaic.co.uk/aic/news/press-releases/top-performing-investment-company-sectors-over-2019
Investing in UK smaller companies rather than the rest of the world probably requires you to have confidence in the UK economy after Brexit. Which brings me onto the subject of politics.
The Renew Party
I was interested to receive a flyer through my door just now for the Renew Party. Bromley & Chislehurst is one of only four constituencies where they are putting up candidates. The Renew Party have an interesting manifesto including political reform.
This is what it says on their web site: “Our system of politics rewards adversaries, not collaboration. These systems need radical reform to get the best, in candidates and in MPs. Whilst vigorous debate is critical to the evolution of our society, it does not need to become personal, crude and nasty…….. We support electoral reform to make representation in parliament proportional to the number of votes cast for each party. This means the abolition of the first-past-the-post voting system”.
That’s something I would vote for, but unfortunately their General Election platform also supports staying in the EU, which may be arguable, and delivering a “People’s Vote”, i.e. another referendum which is a profoundly daft idea. So they are not going to gain my vote this time.
Neither are the Labour Party who delivered a leaflet that referred to “Tory cuts” to the NHS. It’s simply not true – the real expenditure on the NHS has gone up. Indeed the service from the NHS has improved enormously over the 25 years I have been an active user of it. See https://fullfact.org/health/spending-english-nhs/ for the facts. I sent their candidate a complaint about her grossly misleading leaflet but she did not respond. Regrettably there seems no way to easily get such gross distortions by politicians stopped.
Other candidates are from the Christian People’s Alliance, the Green Party, the Liberal Democrats and the Conservative Party (no Brexit Party runner). It may not be a difficult choice.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
You can “follow” this blog by clicking on the bottom right.
© Copyright. Disclaimer: Read the About page before relying on any information in this post.