New BlackRock Smaller Companies trust manager eschews wholesale changes
Retaining 'high-quality' growth bias
BlackRock's "team-based" approach means there is unlikely to be huge portfolio turnover in its BlackRock Smaller Companies trust (BRSC), according to new lead manager Roland Arnold.
Arnold, who has led BRSC's sister open-ended fund since 2015, replaced 14-year veteran Mike Prentis on the trust in June.
Arnold had been Prentis's co-manager since May 2018, having joined BlackRock in 2000.
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"No portfolio exists in a bubble of just one manager, so when Mike left it was not a case of there being a whole lot of stocks we wanted to [change]," Arnold told Investment Week.
"We tend to see the same companies and have the same investment philosophy, so it is highly likely that a big position in this trust would already be a big position in the open-ended fund. There was no need to change things.
"Whatever anyone may think in terms of changes of outlook, the market environment has not actually changed much in the last two years."
Arnold added the team's philosophy has long been "unashamedly bottom up" with "a high-quality growth bias".
"We see no reason to change that," he added.
The team looks for quality business models in leading market positions, which drive pricing power; management teams who can execute strategies effectively, and strong balance sheets.
The team eschews trading around valuation, preferring to set target weightings for its holdings instead. "We strongly believe it is an incorrect philosophy to put a share price valuation on a small-cap company," the manager explained.
"We are looking for dynamic businesses and are positively encouraging them to change and adapt quickly. [Therefore], we are prepared to forgo businesses that look a bit more expensive in the short term because we believe in their ability to grow into those valuations."
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BRSC was boosted by an emphatic election win by the Conservatives and returned 45.8% in the calendar year, doubling its benchmark and peer group's 22.2% and 24.2% respective returns, according to FE fundinfo.
While Arnold stressed UK stocks are "undervalued and under-appreciated", he admits it is hard to know what the true result of the election will be.
"But what we do know in the very near term is we have five years of a Conservative-majority Government and you would hope in that time they can get some finality."
With the current focus on domestic stocks, Arnold noted the UK small and mid-cap markets were more international than many realise.
Further, he added: "We have always felt that if you are looking for a true growth company, then its aspirations should be beyond just the UK shores.
"Because of our investment philosophy and style, we have always been more internationally focused."
One example is 4imprint, a merchandise provider based in Wisconsin, which Arnold said is "100% US".
The firm has a dominant 4%-5% market share in a growing industry and demand for its products has held up despite "wobbles in corporate America in the last year".
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