BMO Managed Portfolio 16 February 2022

BMO Managed Portfolio trust is managed by the highly experienced Peter Hewitt, who has been applying his distinctive style of building portfolios of investment trusts for several decades. Investors can buy two separate share classes with distinct portfolios and objectives to suit their needs. The Growth share class (BMPG) aims to maximise total returns, principally via capital growth. The objective of the Income share class (BMPI) is to provide a level of income exceeding that of the FTSE All-Share Index, along with the potential for growth.

Once a year shareholders can – without cost or incurring UK capital gains tax – exchange between the Growth share and Income share classes. Additionally, as discussed in the Dividend section, there is a transfer mechanism whereby the net income generated by the Growth portfolio is swapped for capital from the Income portfolio, which enhances the dividend of BMPI – currently yielding an attractive 4.3%. Strong retail demand for these ready-made portfolio solutions has resulted in both share classes trading near par and the board raising capital (see the Discount section).

As noted in the Portfolio section, Peter seeks highly active trust managers with long term horizons running strategies that fit into his top down views on investment themes, style tilts and macroeconomic and market trends. In recent years Peter has tilted the portfolio towards growth orientated strategies, which has driven strong Performance over the medium and long term, with 2021 being a more difficult year. Peter diversifies across geographies, sectors, asset classes and investment styles when building portfolios, buying a wide range of trusts from sector specialists in biotechnology to alternative hedging strategies designed to protect capital during periods of market stress.

BMO Managed Portfolio Trust provides investors with a convenient way to access the wide range of unique opportunities that the investment trust universe offers. The ability to efficiently transfer between Growth share and Income share classes makes the trust a flexible savings vehicle which could be used by an investor as a standalone investment solution, being well-suited to investors inclined to buy a ready-made, diversified portfolio managed by the experienced hand of Peter Hewitt rather than picking trusts themselves. Alternatively, BMPG or BMPI could be used as a diversifying holding for trust aficionados; the trust acting as a core holding in a portfolio sitting alongside higher conviction bets.

In terms of performance, BMPG has struggled in 2021 on a relative basis. We highlighted in our previous note in March 2021 BMPG was potentially sensitive to a rally in the value factor, a trend that played out through the rest of 2021. However, the medium and long term track record is strong, and the performance in 2021 was well within the range of expectations for an active manager and still positive on an absolute basis. Any resumption in the leadership of the growth style will likely be a strong tailwind to returns.

For income investors, BMPI provides an attractive yield that is particularly reliable, as it is well supported by the income transfer mechanism, the revenue reserves of BMPI and the reserves of the underlying portfolio trusts.