BMO Managed Portfolio 09 October 2019

BMO Managed Portfolio Trust is a UK investment trust which has two share classes with discrete investment portfolios invested in closed-end investment companies. These are selected by Peter Hewitt, a highly experienced manager who has spent many years researching the closed-ended investment company sector. The Growth shares are focused on achieving capital growth, while the Income shares are focused on providing an income yield above that of the FTSE All-Share Index, along with some capital growth.

Both portfolios invest in a diversified range of over 25 investment companies, looking to ensure the underlying assets cover a range of geographic areas, investment management groups and sectors. They have been managed by Peter since launch in 2008; having managed the assets (which were previously held in F&C’s managed portfolio service) for over a decade, this gives him 20-plus years experience picking investment companies for these portfolios.

Peter is seeking to invest in investment companies which have managers with identifiable long-term performance records and whose managers’ interests are as fully as possible aligned with those of the underlying investors. A total-return mindset is adopted with regard to returns, and some downside protection in more adverse market conditions is desired whilst seeking to ensure the portfolios are exposed to long-term secular growth trends.

Since launch, the Growth portfolio and Income portfolio have seen significant outperformance against the benchmark FTSE All-Share index, with NAV total returns of 112% and 124% respectively, against a return from the benchmark of 91% (as of 31/05/2019, the end of the company’s most recent financial year). The Growth portfolio has outperformed the benchmark in nine of the 11 financial years since launch in 2008, whilst the Income portfolio has outperformed in eight of these periods. Currently, the Growth shares trade on a slight premium to NAV of 2.3%, whilst the Income shares are on a discount of c. 1.3%.

The Income shares dividend has increased each year for the last eight years, with the dividend having grown by 35% in total since launch. Presently the investments within the Income portfolio are yielding c. 4.4%. Any net income generated by the Growth portfolio is transferred to the Income portfolio, which concurrently returns an equivalent level of capital. This helps to benefit the income available for the Income shares and the capital growth of the Growth shares.

A share conversion facility is provided, whereby investors can annually switch between the Income shares and Growth shares (subject to minimum and maximum conversion thresholds) without incurring capital gains tax.

This product originated in the manager’s retail share schemes, and we believe it has retained and expanded upon this target shareholder group. The relatively diverse range of holdings and exposures held within each portfolio helps lend to the two share classes the characteristics of a core holding for global equity exposure. The ability for clients to switch between the Growth and Income share classes without capital gains tax implications, and also without incurring stamp duty, dealing charges and the ‘spread’, is likely to be highly desirable for investors saving into retirement products or with retirement planning needs.