Mike Prentis manages the BlackRock Smaller Companies (BRSC) investment trust and is co-manager of the BlackRock Throgmorton (THROG) investment trust. Both lie in the UK Smaller Companies sector, ranking second and fifth for five-year shareholder returns up to 14 February (Source: Morningstar).
In this video interview Prentis explains how he had to sell Ashtead (AHT.L) at the end of last year after the tool hire company was promoted into the FTSE 100, thus becoming ineligible for his funds, following a six-fold increase in its share price.
Prentis recycled some of the profits into Brewin Dolphin (BRW.L), a wealth manager whose management impressed Prentis at a recent meeting. ‘A very steady business’, Prentis describes it, praising the way it grows assets under management.
The manager likes the stock broking sector and also holds Charles Stanley (CAY.L) and Rathbones (RAT.L). Although fund management groups are more volatile, Prentis is also a fan of Polar Capital Holdings (POLR.L), saying it has ‘a model that works well’.
Confident about prospects for the UK economy Prentis has expanded a consumer theme at the expense of an emerging markets exposure he implemented a few years ago. Housebuilder Bellway (BWY.L) and home furnishings retailer Dunelm (DNLM.L) are leading positions in both funds as a result.
Prentis also praises Howden Joinery (HWDN.L), the leading kitchen units maker, believing the stock has further to run despite a five-fold increase in the shares since the financial crisis. ‘It has a tailwind now that it didn’t have a couple of years ago. It did well a couple of years ago so I feel more confident about it now than I probably did two years ago,’ Prentis says.
BRSC and THROG: how they differ
Prentis describes BlackRock Smaller Companies as a conventional smaller companies investment trust, which uses gearing (or borrowing, currently at 9% of assets) to boost shareholder returns. Over five years it has delivered a total share price return of 435%, helped by a narrowing in the shares’ discount in the past two years.
BlackRock Throgmorton is more unusual. In addition to Prentis’ smaller companies holdings, there is a parallel portfolio of CFDs (contracts for difference) run by Richard Plackett, the manager of BlackRock’s UK Special Situations open-ended fund. CFDs are a form of financial derivative that allow the fund to go long and short of stocks quickly and cheaply and provide a way of protecting the fund when markets look expensive, says Prentis. He describes this side of the fund as a ‘mini hedge fund’ that has delivered positive returns in every financial year it has operated.
Both investment trusts have delivered better returns than Plackett’s UK Special Situations fund and the BlackRock UK Smaller Companies fund run by Ralph Cox. Over five years these funds are up 141% and 200% respectively.