Fund Profile

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This is a non-independent marketing communication commissioned by Columbia Threadneedle Investments. 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.

Overview
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Overview

The objective of BMO Capital & Income (BCI) is to generate capital and income growth from a portfolio of UK listed equities. The manager, Julian Cane, has now managed the trust for a quarter of a century and, as we discuss in the Performance section, has outperformed the FTSE UK All-Share Index benchmark over the long and medium term. BCI has grown its dividend every year since 1992, hence the Association of Investment Companies (AIC) has awarded it ‘Dividend Hero’ status and, as discussed in the Dividend section, the trust is on track to continue to grow its payout once again.

BCI currently yields 3.7%. Although this is higher than the FTSE UK All-Share Index, it is lower than the UK Equity Income peer group average. This reflects Julian’s philosophy of not sacrificing total returns and sustainable dividend growth for current yield. To this end Julian has tilted the portfolio towards mid cap companies with good growth prospects, limiting exposure to the large, lower growth, incumbent dividend payers that are common in UK equity income portfolios (this is discussed in detail in the Portfolio section). This has been accompanied by increased concentration in the portfolio, Julian shifting from holding over 70 to around 50 stocks.

BCI has a wide ownership base of smaller retail investors that re-invest a significant portion of their dividends, likely due to the strong track record of dividend growth, performance and stability of management of BCI. This creates a strong underlying demand for shares that has kept BCI trading near par, reducing discount volatility as discussed in the Dividend section.

Analyst's View

We think BCI will appeal to income investors looking for the features of a ‘core’ UK equity income strategy: a cost-effective exposure to the UK market that offers a yield higher than the FTSE UK All-Share, reliably growing dividends and potential for outperformance without excessive extra risk. With a relatively low OCF of 0.59%, a yield above the benchmark’s, an exemplary track record of consistent dividend increases and Julian’s long term outperformance BCI ticks all these boxes. The stability of the trust’s discount, which has generally traded around par, is also an attractive feature for a long term, core holding.

However, we think BCI is differentiated from other trusts in the UK Equity Income peer group that are often thought of as fitting this ‘core’ category. The concentrated portfolio with significant exposure to mid-sized companies with attractive growth prospects offers income investors scope for good total returns alongside the market-beating yield. By avoiding chasing yield and investing in companies that will grow dividends organically, Julian is also putting the long-term future dividend growth of BCI on a sound, sustainable basis. In the shorter term, the focus on buying companies with strong pricing power could provide inflation protection to investors if the currently high inflation rates, as at the time of writing, persist (the outbreak of war in Ukraine making this more likely).

The low exposure to the large, incumbent dividend payers that are common in UK equity income portfolios also means that BCI is complementary to other, more traditional or passive exposures to the UK market.

Bull

  • Experienced manager has outperformed benchmark over 25-year tenure
  • Decades long track record of dividend growth
  • Strong investor base means BCI tends to trade close to par

Bear

  • Lower yield than peer group average, manager averse to chasing yield
  • Tilt towards growing, mid-sized firms risks underperformance if large, value stocks rally
  • Gearing can amplify downside as well as upside
Continue to Portfolio

Fund History

31 Jul 2024 Fund Analysis
An AIC ‘Dividend Hero’, CTUK has increased its dividend every year since 1992…
03 May 2024 A new megalo-dawn
Why the FTSE 100 is ready to shake off its shackles…
28 Mar 2024 Healthcare, UK valuations, and renewables
We take a look back at the final week of our ISA event…
20 Mar 2024 How to grow old gracefully (and preferably rich)...
Ahead of the final week of our event, focused on retirement planning, we consider some of the complexities of portfolio construction…
26 Mar 2024 CT UK Capital & Income
Julian Cane
Rewatch this webinar as part of our month-long online series 'Themes for your ISA in 2024' hosted by the team at Kepler Trust Intelligence throughout March...
Watch Recording
31 Jan 2024 Fund Analysis
CTUK is celebrating 30 years of dividend growth…
06 Dec 2023 Fool's gold
Cash would have been a poor investment through this period of high inflation…
11 May 2023 Fund Analysis
An active stock-picking approach has driven CTUK’s ‘Dividend Hero’ status…
06 Apr 2023 Fallen Kingdom?
Since the UK was described as a ‘Jurassic Park’ stock market, it has outperformed. Is this a new age for the stock market..?
16 Nov 2022 Fund Analysis
A differentiated income approach by CTUK that continues to build on its ‘Dividend Hero’ status…
30 Mar 2022 Fund Analysis
An AIC ‘Dividend Hero’, BCI is on track to continue to grow its payout once again…
23 Jun 2021 Fund Analysis
An AIC ‘Dividend Hero’, BCI has increased its dividend every year since 1992…
03 Mar 2021 Strength in depth
UK Equity Income trusts have done a heroic job of maintaining their dividends through the pandemic...
23 Dec 2020 Fund Analysis
Having increased its dividend every year since 1992, BCI retains substantial revenue reserves…
View all

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