BMO Managed Portfolio

Offering both Growth (BMPG) and Income (BMPI) share classes, BMO Managed Portfolio Trust allows shareholders to switch annually between share classes in a tax efficient manner...

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This is a non-independent marketing communication commissioned by BMO Managed Portfolio. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

BMO Managed Portfolio
2021 Kepler Income & Growth Rated Fund

This trust has been awarded a rating by Kepler for income & growth... Find out more

BMO Managed Portfolio Trust has two distinct share classes: Growth (BMPG) and Income shares (BMPI) each with discrete investment portfolios. Manager Peter Hewitt uses his many years of experience in the market to pick a portfolio of investment companies to suit each objective. Income earned from the growth portfolio can be used to boost the dividend paid to the Income shareholders, which yield 4.6% on an historic basis. This transfer mechanism is discussed under Dividend.

BMPG and BMPI are both managed by Peter Hewitt. Peter seeks to identify investment companies where he believes there are strong management processes and identifiable and distinct strategies that lend themselves to long-term outperformance. As discussed under Portfolio, in recent years this has included significant exposure to companies focussed on ‘secular growth’ opportunities, even in the Income portfolio. The manager looks to diversify across investment styles and asset classes within both portfolios, including incorporating protective strategies designed to preserve or even grow capital in market downturns.

As discussed under Performance, the tilt towards growth strategies has proven highly beneficial over recent years and especially the past 12 months, and both share classes have outperformed their benchmark. Protective strategies also proved their worth in the Q1 2020 drawdown, whilst the market sell-off gave Peter the opportunity to build positions with high entry yields in companies where he believed income streams to be resilient.

Resilience of underlying income and support from the transfer mechanism has ensured that BMPI’s dividend has remained covered this year, as discussed under Dividend. Shareholders are further able to convert shares in either share class to the other once a year without incurring UK capital-gains tax, stamp duty, or dealing charges or ‘spreads’.

Kepler View

Both BMPG and BMPI have generated strong relative returns over the past year, exceptionally so in the case of BMPG. These strong results, and BMPG benefitting from strategic tilts towards winning growth strategies and structural allocations to protective assets, should be highly gratifying to existing shareholders. Similarly, we estimate that the income transfer mechanism has helped the attractive historic yield of 4.6% (as at 12/02/2021) remain covered. This, we would note, frees up some of the requirement to seek income within BMPI’s portfolio and allows Peter to retain a greater exposure to opportunities for capital growth whilst maintaining and growing the dividend than might otherwise be the case.

Nonetheless, the degree of outperformance from BMPG in particular is very extended relative to history. We note the manager’s comment to the effect that he does not believe the tailwinds many top holdings enjoyed in 2020 will be replicated in the coming months (though he remains positive), and we would concur with this. The announcement of COVID-19 vaccine developments in November 2020 proved positive for the relative fortunes of ‘value’ strategies but a headwind for BMPG on a relative basis (though absolute returns were strong subsequently). We would anticipate any trend towards value or UK outperformance and/or rising inflation as likely to prove a near-term headwind for both share classes.

bull bear
Performance has been strong over both the long and short term
UK outperformance to the rest of the world would likely be a headwind relative to the benchmark
Income shares offer attractive yield which remains covered by income
Gearing can exacerbate downside, as well as amplify upside
Share conversion facility allows shareholders to adjust to changing portfolio requirements tax efficiently
Limited to no discount opportunity
Callum Stokeld
Callum joined Kepler as an investment trust analyst in July 2019. Prior to this he worked as a senior investment analyst on a range of multi-manager, multi-asset portfolios, having previously worked at IFA firms in roles focused on oversight of fund selection and asset allocation. He graduated from the University of Glasgow with an honours degree in Law.

Fund History

Disclaimer

This report has been issued by Kepler Partners LLP.  The analyst who has prepared this report is aware that Kepler Partners LLP has a relationship with the company covered in this report and/or a conflict of interest which may impair the objectivity of the research.

Past performance is not a reliable indicator of future results. The value of investments can fall as well as rise and you may get back less than you invested when you decide to sell your investments. It is strongly recommended that if you are a private investor independent financial advice should be taken before making any investment or financial decision.

Kepler Partners is not authorised to make recommendations to retail clients. This report has been issued by Kepler Partners LLP, is based on factual information only, is solely for information purposes only and any views contained in it must not be construed as investment or tax advice or a recommendation to buy, sell or take any action in relation to any investment.

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