Gaining entry to the FTSE 250 index is a significant achievement and, based on recent performance, I reckon there’s an investment trust that looks on the brink of doing just that.
FTSE 250 bound?
The BlackRock Throgmorton Trust (LSE: THRG) is the fund in question. Its aim is simple. To provide investors with capital growth by putting the vast majority of assets to work in small- and mid-cap UK companies. There’s some exposure to overseas markets such as the US, France and Australia in there, but this is primarily a play on the British economy.
According to its latest factsheet, the trust owns some of the best-performing stocks on the London market over the last year. Luxury timepiece retailer Watches of Switzerland is among the 10 biggest holdings, as are data analytics firm YouGov and Impax Asset Management. Lockdown winner Pets at Home and veterinary services provider CVS Group also feature.
THRG’s sector allocation is rather contrarian too. It’s heavily exposed to industrial, consumer discretionary and financial shares. By contrast to, say, FTSE 100 member Scottish Mortgage Investment Trust, the number of technology-focused stocks is low at just 8%. For me, this makes Throgmorton’s gains all the more impressive.
So just how well has it done?
In the last year, the trust’s share price has climbed an impressive 61%. Out of interest, the FTSE 250 index that Throgmorton might end up joining achieved 33% over the same period. The latter is clearly far from a bad result, considering the impact of Covid-19 on businesses up and down the UK. Even so, this huge difference does show the value that experienced stock pickers can bring.
Over a longer timeline, THRG’s outperformance is even more noticeable. The investment trust returned has delivered a staggering annualised return of 27.9% over the last five years. The Morningstar IT UK Smaller Companies benchmark has managed ‘just’ 14.6%.
Things to remember…
As superb as the performance of this investment trust has been in recent years, I must bear a few things in mind.
First, there’s no guarantee that recent gains will be repeated. In fact, a slowdown in the UK recovery might lead to a reversal in Throgmorton’s performance. The portfolio does include quite a few highly-rated stocks. These are often some of the first to be jettisoned when sentiment turns.
Second, investment trust share prices — especially those with a small-cap focus — can still be volatile. Minnows may possess the potential to generate better returns than top-tier blue-chips over the long term. Unfortunately, the journey to riches tends to be bumpier due to their relative illiquidity. That said, THRG does possess the ability to ‘short’ companies. So perhaps the downside might be more contained than at other similar trusts?
Third, it should never be forgotten that investment trusts levy fees. Throgmorton’s ongoing charge is currently 0.6%. Yes, the payment of a dividend does help to offset this. However, this is clearly a more expensive option than simply buying a set of promising stocks and sitting back.
Notwithstanding the above, I do think this investment trust could still occupy a space in my risk-tolerant portfolio. Also bear in mind that funds tracking the FTSE 250 will have to buy once its value breaches the FTSE 250 threshold. This should provide further support to the THRG share price and make it more appealing to me.
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Paul Summers owns shares in Scottish Mortgage Investment Trust. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.