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Higher exposure to more defensive funds

BMO Managed Portfolio Trust Growth Portfolio 16 November 2018 Review
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BMO Managed Portfolio Trust

Higher exposure to more defensive funds

Investment trusts

 

16 November 2018

BMPI; BMPG

Price

131.0p; 203.0p

Market cap

£56m; £72m

AUM

£59m; £71m

NAV*

125.7p; 197.2p

Premium(+)/discount(-) to NAV

+4.2%; +3.0%

NAV**

127.4p; 197.2p

Premium(+)/discount(-) to NAV

+2.8%; +3.0%

*Excluding income. **Including income. As at 16 November 2018.

Yield

4.4%; 0.0%

Ordinary shares in issue

42.9m; 35.6m

Code

BMPI; BMPG

Primary exchange

LSE

AIC sector

Flexible Investment

Benchmark

FTSE All-Share

BMPI one-year performance

BMPG one-year performance

BMPI gearing

Net gearing*

8.2%

BMPG gearing

Net cash*

1.3%

*As at 31 October 2018.

Analysts

Mel Jenner

+44 (0)20 3077 5720

Sarah Godfrey

+44 (0)20 3681 2519

BMO Managed Portfolio Trust is a research client of Edison Investment Research Limited

BMO Managed Portfolio Trust (BMPT), which changed its name from F&C Managed Portfolio Trust on 9 November 2018, has a unique structure comprising two discrete portfolios investing in closed-end funds: BMPI, which aims to generate an attractive and growing level of income, with some capital growth, and BMPG, which aims to generate capital growth. Any income generated by BMPG is transferred to BMPI in exchange for an equivalent amount of capital. Manager Peter Hewitt notes that BMPI’s Q119 dividend is 3.8% higher year on year, and as previously announced, barring unforeseen circumstances, the board expects the regular annual dividend to be at least 5.85p per share (5.70p in FY18). For BMPG, the manager says the portfolio offers exposure to well-managed funds, with strong performance records and secular long-term growth characteristics. Given the manager’s near-term caution on equity markets, he has been increasing the more defensive exposures in both BMPI and BMPG.

12 months ending

BMPI share price (%)

BMPI NAV (%)

BMPG share price (%)

BMPG NAV (%)

FTSE All-Share (%)

31/10/14

6.8

2.8

1.1

3.0

1.0

31/10/15

3.2

3.6

12.8

7.4

3.0

31/10/16

7.1

11.3

7.7

9.6

12.2

31/10/17

19.1

15.6

21.4

20.9

13.4

31/10/18

(3.7)

(3.6)

2.0

0.8

(1.5)

Source: Thomson Datastream. Note: All % on a total return basis in pounds sterling.

Investment strategy: Options for income and growth

BMPI and BMPG both hold c 40 closed-end funds, selected on a bottom-up basis. Hewitt invests for the long term, aiming to grow capital and income, while providing a level of portfolio protection when stock markets are more choppy. He undertakes a rigorous programme of meeting investment companies to identify managers who are able to outperform consistently, while gaining an understanding of their investment processes and styles.

Market outlook: Increase in share price volatility

Equity investors have become more jittery in 2018, following a particularly benign period for stock market volatility in 2017. Attention has focused on risks to global trade due to the US’s protectionist policies, the effects of a strong US dollar, and higher interest rates as central banks begin to normalise their monetary policy. With corporate earnings remaining robust, share price weakness has led to more attractive company valuations; however, given the uncertain macroeconomic environment, investors may benefit from a selective approach to equity investment.

Valuation: Trading close to NAV

BMPT’s board aims to ensure both portfolios trade close to NAV. Renewed annually, there is authority to repurchase up to 14.99% of shares to manage a discount, and issue up to 10% of shares to manage a premium. BMPI and BMPG are currently both trading at modest premiums, which are broadly in line with their averages over the last one, three and five years. While BMPG does not pay a dividend, BMPI is offering an above-market dividend yield of 4.4%.

Exhibit 1: BMPI at a glance

Investment objective and fund background

Recent developments

BMO Managed Portfolio Trust Income Portfolio (BMPI) aims to provide an attractive level of income, with the potential for income and capital growth, from a diversified portfolio of investment companies. Underlying investment exposure is across a range of regions and sectors – the focus is on offering an income yield above that of the benchmark FTSE All-Share index.

30 October 2018: announcement of BMPI’s share conversion (see page 9).

6 September 2018: announcement of first interim dividend of 1.35p per share, +3.8% year-on-year.

31 July 2018: annual results ending 31 May 2018. NAV TR +3.0% versus benchmark TR +6.5%, share price TR +2.7%.

9 July 2018: appointment of Sue Inglis as non-executive director.

Forthcoming

Capital structure

Fund details

AGM

September 2019

Ongoing charges

1.07%

Group

BMO Global Asset Mgmt (BMO)

Interim results

January 2019

Net gearing

8.2%

Manager

Peter Hewitt

Year end

31 May

Annual mgmt fee

0.65% (see page 9)

Address

6th Floor, Quartermile 4, 7 Nightingale Way Edinburgh, EH3 9EG

Dividend paid

Quarterly

Performance fee

Yes (see page 9)

Launch date

April 2008

Trust life

Indefinite

Phone

+44 (0)131 718 1000

Continuation vote

Five yearly, next 2023

Loan facilities

£7m (BMPT)

Website

bmomanagedportfolio.com

Dividend policy and history (financial years)

Share buyback policy and history (financial years)

Dividends are paid quarterly in October, January, April and July.

Renewed annually, BMPT has the ability to repurchase up to 14.99% and allot up to 10% of shares per year.

Shareholder base (as at 1 November 2018)

Portfolio look-through exposure by geography (as at 31 October 2018)

Top 10 holdings (as at 31 October 2018)

Portfolio weight %

Trust

Sector

31 October 2018

31 October 2017*

Law Debenture Corporation

Global

3.7

3.6

BB Healthcare

Sector Specialist: Biotechnology & Healthcare

3.5

N/A

Secure Income REIT

Property Specialist

3.5

3.2

NB Private Equity Partners

Private Equity

3.4

N/A

BB Biotech

Sector Specialist: Biotechnology & Healthcare

3.4

3.1

Princess Private Equity Holding

Private Equity

3.2

3.1

JPMorgan Global Growth & Income

Global Equity Income

3.2

3.1

Henderson International Income Trust

Global Equity Income

3.2

N/A

Murray International Trust

Global Equity Income

3.2

4.1

Invesco Perpetual UK Smaller Companies

UK Smaller Companies

3.1

3.3

Top 10

33.4

33.0

Source: BMO Managed Portfolio Trust, Edison Investment Research, Bloomberg, Morningstar. Note: *N/A where not in October 2017 top 10.

Exhibit 2: BMPG at a glance

Investment objective and fund background

Recent developments

BMO Managed Portfolio Trust Growth Portfolio (BMPG) aims to provide capital growth from a diversified portfolio of investment companies. Underlying investment exposure is across a range of regions and sectors, aiming to maximise total returns, primarily through capital growth. BMPG is benchmarked against the FTSE All-Share index.

30 October 2018: announcement of BMPG’s share conversion (see page 9).

31 July 2018: annual results ending 31 May 2018. NAV TR +11.0% versus benchmark TR +6.5%, share price TR +10.6%.

9 July 2018: appointment of Sue Inglis as non-executive director.

Forthcoming

Capital structure

Fund details

AGM

September 2019

Ongoing charges

1.03%

Group

BMO Global Asset Mgmt (BMO)

Interim results

January 2019

Net cash

1.3%

Manager

Peter Hewitt

Year end

31 May

Annual mgmt fee

0.65% (see page 9)

Address

6th Floor, Quartermile 4, 7 Nightingale Way Edinburgh, EH3 9EG

Dividend paid

None

Performance fee

Yes (see page 9)

Launch date

April 2008

Trust life

Indefinite

Phone

+44 (0)131 718 1000

Continuation vote

Five-yearly, next 2023

Loan facilities

£7m (BMPT)

Website

bmomanagedportfolio.com

Dividend policy and history

Share buyback policy and history (financial years)

No dividends paid – net income is reallocated to the income portfolio in exchange for capital.

Renewed annually, BMPT has the ability to repurchase up to 14.99% and allot up to 10% of shares per year.

Shareholder base (as at 4 September 2018)

Portfolio look-through exposure by geography (as at 31 October 2018)

Top 10 holdings (as at 31 October 2018)

Portfolio weight %

Trust

Sector

31 October 2018

31 October 2017*

Monks Investment Trust

Global

4.4

4.4

Polar Capital Technology Trust

Sector Specialist: Tech Media & Telecomm

3.8

3.9

Allianz Technology Trust

Sector Specialist: Tech Media & Telecomm

3.7

3.4

Syncona

Sector Specialist: Biotechnology & Healthcare

3.3

3.0

Scottish Mortgage Investment Trust

Global

3.1

3.3

RIT Capital Partners

Flexible Investment

3.0

N/A

Baillie Gifford Japan Trust

Japan

3.0

3.1

Worldwide Healthcare Trust

Sector Specialist: Biotechnology & Healthcare

2.9

3.0

Personal Assets Trust

Flexible Investment

2.8

2.7

BH Macro

Hedge Funds

2.8

N/A

Top 10

32.8

32.3

Source: BMO Managed Portfolio Trust, Edison Investment Research, Bloomberg, Morningstar. Note: *N/A where not in October 2017 top 10.

Market outlook: Macro factors making their mark

The performance of UK and global stock markets over the last decade is shown in Exhibit 3 (LHS). For the sterling-based investor, overseas equities have delivered significantly higher total returns than UK equities over the last four years, particularly over the last two, where performance has been hindered by ongoing Brexit negotiations and sterling weakness. While global stock markets enjoyed a period of particularly low volatility in 2017, this year has seen a return to sharper moves in share prices as investors have become more risk averse. Markets sold off in early 2018 before recovering and are again in a downtrend as there is more attention focused on macroeconomic factors, such as a strong US dollar, and the risks to economic growth from rising interest rates and trade tensions as a result of President Trump’s ‘America First’ strategy. While the recent pullback in share prices has led to more attractive company valuations, the forward P/E multiple of global equities, led by the US, remains above its 10-year average (Exhibit 3, RHS), suggesting investors may benefit from being more selective when deciding on their equity exposure.

Exhibit 3: Market performance and valuation

Performance of indices over 10 years (£ terms)

Valuation metrics of Datastream indices (15 November 2018)

 

Last

High

Low

10-year average

Last as % of average

UK

P/E 12 months forward (x)

12.2

15.8

7.4

12.5

98

Price to book (x)

1.4

2.1

1.2

1.7

86

Dividend yield (%)

4.1

6.6

2.7

3.5

116

Return on equity (%)

12.4

14.8

2.5

9.6

129

World

P/E 12 months forward (x)

13.9

16.3

8.8

13.4

104

Price to book (x)

2.1

2.2

1.1

1.7

117

Dividend yield (%)

2.6

4.6

2.2

2.6

98

Return on equity (%)

12.3

13.7

4.8

10.6

116

Source: Thomson Datastream, Edison Investment Research

Fund profile: Opportunities for income and growth

Since launch on 16 April 2008, BMPT has been managed by Peter Hewitt at BMO Global Asset Management (BMO, formerly known as F&C). Through its two portfolios, he aims to generate an attractive level of income with some capital growth (BMPI) or capital growth (BMPG) from a broad spread of investment companies diversified by manager, geography and sector. BMPT is intended to appeal to regular savers and investors with smaller investment portfolios; it currently has c 15k shareholders and assets of c £130m (compared with £42m at launch); this includes £13m from the rollover of Cayenne Trust, which was liquidated in December 2015.

A unique feature of the trust is that any income generated by BMPG is transferred to BMPI in exchange for an equal amount of capital, which boosts the income potential for BMPI and the capital growth potential for BMPG. Both portfolios are benchmarked against the FTSE All-Share index. The trust’s investment guidelines state that BMPI and BMPG must each contain at least 25 investment companies (typically c 40, primarily invested in equities). At the time of investment, a maximum 15% of each portfolio may be in a single holding, and up to 20% may be invested in other funds managed by BMO. There are no geographic or sector restrictions. Derivatives are permitted for efficient portfolio management, including to protect the portfolios during periods of stock market weakness. Each fund is permitted to gear up to 20% of total assets; at end-October 2018, BMPI had net gearing of 8.2% and BMPG had a net cash position of 1.3%.

The fund manager: Peter Hewitt
The manager’s view: Tougher environment for investors

Hewitt’s view is that, while we are closer to the end of the current investment cycle and economic growth is slowing, he does not expect a recession. He says that rising interest rates in the US are putting pressure on equity valuations, and the UK economy and stock market are challenged by uncertainties surrounding Brexit. The manager believes that positive developments in negotiations with the EU could lead to a relief rally in UK shares, and some areas of the stock market look attractively valued, such as small-caps and companies with domestic operations. However, to have a positive view on UK equities, Hewitt believes the Brexit situation needs to be clarified.

The manager notes a large pipeline of UK investment companies aiming to list on the stock market; he suggests that so far, the quality of these companies has been ‘okay’, but the sheer number of potential initial public offerings (IPOs) suggests that not all of them will be successful. Regarding two recent IPOs, Hewitt comments that Smithson Investment Trust, which invests in global small- and mid-caps, smashed its initial £250m fundraising target, by raising in excess of £820m, while Mobius Investment Trust only raised around half of its indicated £200m, as emerging markets are out of favour. However, the manager backed Mobius Investment Trust with a £5m position in BMPG, partially funded by the sale of Genesis Emerging Markets Fund. Hewitt says that the Mobius Investment Trust is a good example of successful managers leaving a large company to set up a fledgling business and committing their own capital; he believes these actions are a recipe for success. The manager argues that it is an opportune time for a long-term investor to consider emerging markets exposure, given their relatively weak performance in recent months.

Asset allocation
Investment process: Bottom-up fund selection

The manager takes a long-term approach to fund selection. He aims to grow both capital and income, while offering a level of portfolio protection in periods of stock market weakness; hence, both BMPI and BMPG have a number of more defensive positions. Funds are selected on a bottom-up basis, with Hewitt using his extensive industry experience to seek out managers who are able to outperform their respective benchmarks (as well as the FTSE All-Share index). Meeting investment company management is a key part of the investment process, which is supplemented by the use of third-party research. While Hewitt takes account of a fund’s discount/premium at the time of purchase, this is not a primary consideration.

Over time, there has been a broadening of the opportunity set for equity-based income trusts; BMPI now has exposure to Asia Pacific, emerging markets, smaller European companies and the biotech/healthcare sector, along with its traditional holdings in developed markets. BMPG focuses on companies with good capital growth prospects, such as the flagship funds of boutique investment houses, emerging markets, private equity, and the technology and biotech sectors. UK exposure in both portfolios has declined in recent years, as the manager believes that overseas equities generally offer potential for higher long-term total returns.

Current portfolio positioning

BMPI: recent new positions include: Aberforth Split Level Income Trust (UK smaller companies); Allianz Technology Trust; Hipgnosis Songs Fund (royalty income); and The Scottish American Investment Company (global equity income). Allianz Technology Trust, along with BMPI’s position in Monks Investment Trust, are not typical income stocks, but were purchased because a large special dividend from 3i Infrastructure means that BMPI is replete with income, but these two positions could be sold, if this position changes. The fund also has positions in BB Biotech and BB Healthcare, which both pay dividends out of capital. These four highlighted trusts provide around 10% exposure to the secular growth in the biotechnology and technology sectors. Hipgnosis Songs Fund had its IPO in July 2018. The company’s strategy is to buy the royalty streams from well-known music artists. Hewitt explains that copyright income is now growing, following years of stagnation, due to the rapid growth of streaming and the increased inclusion of songs in advertisements and films. Hipgnosis is targeting a 5% dividend yield, and the manager believes there is also the potential for capital growth.

Recent sales include BMO UK High Income Trust (UK equity income); GCP Infrastructure Investments (asset-backed debt); HICL Infrastructure Company (private finance initiative infrastructure); and Securities Trust of Scotland (global equity income).

BMPG: recent new positions include Aurora Investment Trust and Baillie Gifford UK Growth Trust (both UK all companies), while River & Mercantile UK Micro Cap Trust (UK small companies) was sold. Aurora Investment Trust is managed by Phoenix Asset Management Partners, who run a very concentrated fund of undervalued, primarily large-cap UK equities. It only initiates a position when a company is trading at a 50% discount to its perceived intrinsic value. Hewitt initiated a position in the Baillie Gifford UK Growth Trust following the change in manager from Schroder Investment Management to Baillie Gifford.

Exhibit 4: BMPI’s and BMPG’s look-through geographic exposure (% unless stated)

BMPI

Portfolio end-October 2018

Portfolio end- October 2017

Change (pts)

BMPG

Portfolio end- October 2018

Portfolio end- October 2017

Change (pts)

UK

35.0

39.0

(4.0)

UK

28.0

28.0

0.0

North America

18.0

14.0

4.0

North America

24.0

24.0

0.0

Europe

13.0

13.0

0.0

Europe

19.0

18.0

1.0

Far East & Pacific

7.0

10.0

(3.0)

Far East & Pacific

7.0

10.0

(3.0)

Japan

4.0

3.0

1.0

Japan

5.0

5.0

0.0

China

2.0

2.0

0.0

China

2.0

2.0

0.0

Russia

2.0

2.0

0.0

South America

1.0

2.0

(1.0)

South America

2.0

1.0

1.0

Africa

1.0

1.0

0.0

Other

2.0

1.0

1.0

Other

2.0

2.0

0.0

Fixed interest

6.0

6.0

0.0

Fixed interest

4.0

2.0

2.0

Cash

9.0

9.0

0.0

Cash

7.0

6.0

1.0

100.0

100.0

100.0

100.0

Source: BMO Managed Portfolio Trust, Edison Investment Research

Given the manager’s more cautious view on global stock markets, he highlights that there are a number of holdings in BMPI’s portfolio that are not equity related, such as Hipgnosis Songs Fund and The Renewables Infrastructure Group, which should perform relatively well on an NAV basis in an equity market downswing. Hewitt has also been building up BMPG’s portfolio protection by increasing exposure to the fund’s more defensive holdings (exposure is now up to c 12%) such as Personal Assets Trust and Ruffer Investment Company. While his longer-term view is that it is beneficial to be exposed to secular growth themes, he believes that more caution is warranted in the near term given the current macroeconomic backdrop.

Performance: Wide dispersion of total returns in FY18

It is interesting to note that in FY18 (ending 31 May 2018), the difference in total returns for BMPI and BMPG was the widest since BMPT was launched in April 2008. This reflected investor appetite for growth over value stocks, with particularly strong performance from the technology sector. Data from BMPT show that from launch to end-FY18, BMPI’s NAV total return of 117.7% outperformed the benchmark’s 97.9% total return by 19.8pp, while BMPG’s NAV total return outperformed by 12.5pp. In the 10 years since launch, BMPI has outperformed the benchmark in seven financial years, performed in line in one (FY17), while underperforming in two (FY14 and FY18); BMPG has outperformed in eight years, while also underperforming in two (FY09 and FY12). The manager highlights the benefits of his long-term investment approach, citing BMPI’s holding in Lowland Investment company, which has delivered a total return in excess of 200% since purchase in September 2009, and BMPG’s holding in Allianz Technology Trust, which has delivered a total return in excess of 500% since purchased in May 2008.

BMPI: in FY18, BMPI’s NAV and share price total returns of +3.0% and +2.7% respectively were below the benchmark’s +6.5% total return. The best contributors to performance were CC Japan Income and Growth Trust (+24%), which benefited from good stock selection and has rapid dividend growth, and BB Biotech (+21%), which built on its positive investment track record. The largest detractor was HICL Infrastructure (-13%), which de-rated during the period, moving from a premium to a discount.

Exhibit 5: BMPI’s performance to 31 October 2018

Price, NAV and benchmark total return performance, one-year rebased

Price, NAV and benchmark total return performance (%)

Source: Thomson Datastream, Edison Investment Research. Note: Three-, five- and 10-year performance figures annualised.

BMPI’s relative performance is shown in Exhibits 6 and 7. Its NAV and share price total return have outperformed the benchmark over five and 10 years but have lagged over one and three years.

Exhibit 6: BMPI’s share price and NAV total return performance, relative to indices (%)

 

One month

Three months

Six months

One year

Three years

Five years

10 years

Price versus FTSE All-Share

0.0

3.2

1.2

(2.3)

(2.1)

3.7

20.9

NAV versus FTSE All-Share

(1.0)

1.7

0.6

(2.1)

(1.0)

1.3

12.3

Price versus FTSE All-Share Eq Invt Instr

0.3

1.0

(2.6)

(5.5)

(12.5)

(13.4)

(4.4)

NAV versus FTSE All-Share Eq Invt Instr

(0.7)

(0.4)

(3.2)

(5.3)

(11.6)

(15.4)

(11.2)

Source: Thomson Datastream, Edison Investment Research. Note: Data to end-October 2018. Geometric calculation.

Exhibit 7: BMPI’s NAV total return performance relative to benchmark over 10 years

Source: Thomson Datastream, Edison Investment Research

BMPG: in FY18, BMPG’s NAV and share price total returns of +11.0% and +10.6% respectively were meaningfully ahead of the benchmark’s +6.5% total return. The best contributors to performance were Syncona (+47%), whose life sciences businesses are making good progress, and Edinburgh Worldwide Investment Trust (+42%), which has a bias to the technology and healthcare sectors. The largest detractor was Woodford Patient Capital Trust (-21%), whose largest holding Prothena suffered from negative clinical trial data.

Exhibit 8: BMPG’s performance to 31 October 2018

Price, NAV and benchmark total return performance, one-year rebased

Price, NAV and benchmark total return performance (%)

Source: Thomson Datastream, Edison Investment Research. Note: Three-, five and 10-year performance figures annualised.

BMPG’s relative performance is shown in Exhibits 9 and 10. It has outperformed the benchmark in both NAV and share price terms over all periods shown, with the exception of the last month.

Exhibit 9: BMPG’s share price and NAV total return performance, relative to indices (%)

 

One month

Three months

Six months

One year

Three years

Five years

10 years

Price versus FTSE All-Share

(2.3)

1.1

3.1

3.6

6.3

16.6

22.7

NAV versus FTSE All-Share

(2.1)

0.8

3.0

2.3

6.5

13.3

21.1

Price versus FTSE All-Share Eq Invt Instr

(2.1)

(0.9)

(0.8)

0.2

(5.0)

(2.6)

(3.0)

NAV versus FTSE All-Share Eq Invt Instr

(1.9)

(1.3)

(0.9)

(1.1)

(4.8)

(5.4)

(4.2)

Source: Thomson Datastream, Edison Investment Research. Note: Data to end-October 2018. Geometric calculation.

Exhibit 10: BMPG’s NAV performance relative to benchmark over 10 years

Source: Thomson Datastream, Edison Investment Research

Discount: Portfolios regularly trade close to NAV

BMPT’s board seeks to ensure that BMPI’s and BMPG’s shares trade close to NAV (aiming to limit the discount to 5% in normal market conditions). BMPI is currently trading at a 2.8% share price premium to cum-income NAV, which is higher than the 0.8% to 1.3% range of average premiums over the last one, three and five years.

Exhibit 11: BMPI’s share price premium/discount to NAV (inc. income) over three years (%)

Source: Thomson Datastream, Edison Investment Research

BMPG is currently trading at a 3.0% share price premium to cum-income NAV, which is higher than the 0.6% to 1.3% range of average premiums over the last one, three and five years.

Exhibit 12: BMPG’s share price premium/discount to NAV over three years (%)

Source: Thomson Datastream, Edison Investment Research

Capital structure and fees

BMPI has 42.9m and BMPG has 35.6m ordinary shares in issue (there are no shares held in treasury). BMPT has a £7m debt facility with the Royal Bank of Scotland, comprising a £5m five-year loan at a fixed rate of 2.03%, and a £2m two-year unsecured revolving credit facility. Gearing of up to 20% of total assets is permitted in both portfolios; at end-October 2018, BMPI had 8.2% net gearing and BMPG had a 1.3% net cash position.

BMO is paid an annual management fee of 0.650% pa of total assets in each portfolio, reducing to 0.325% pa on any BMO-managed investments; the fee is split 60:40 between the capital and revenue accounts for BMPI and 80:20 respectively for BMPG. A 10% performance fee is payable based on the excess total return of BMPI and BMPG versus the benchmark (capped at 0.35% of the total assets of the relevant portfolio). In FY18, BMPI’s ongoing charge was 1.07%, which was 5bp lower than in FY17, and 44bp lower than the 10-year high in FY10. BMPG’s ongoing charge was 1.03%, which was also 5bp lower than in FY17, and 56bp lower than the 10-year high in FY12.

Each October, shareholders have the opportunity to convert their income shares into growth shares and vice versa, in a ratio based on each portfolio’s NAV per share; the conversion is subject to certain minimum and maximum thresholds. The first conversion took place on 1 November 2018 (based on 25 October 2018 closing NAVs): 242,448 BMPI shares were converted into 155,065 BMPG shares, and 37,172 BMPG shares were converted into 58,118 BMPI shares.

Dividend policy and record

A unique feature of BMPT is that any net revenue generated by BMPG passes to BMPI in exchange for an equal amount of capital. BMPI pays quarterly dividends in October, January, April and July. In FY18, the regular dividend of 5.70p was 4.6% higher than 5.45p in FY17, an increase broadly in line with the 4.4% five-year compound annual growth rate (annual dividends have grown for the last seven consecutive years). The FY18 regular dividend was c 1.3x covered by income, which was boosted by receipt of a special dividend from 3i Infrastructure. As a result, the BMPT board also declared a special dividend of 0.8p for FY18. At the end of the financial year, after providing for the fourth interim dividend, the revenue reserve was c £1.4m, which is equivalent to c 60% the FY18 regular dividend, providing a buffer for years where income is lower. Barring unforeseen circumstances, the first three FY19 interim dividends will be 1.35p per share, while the fourth interim dividend will be dependent on the level of income generated throughout the financial year. Based on its current share price, BMPI offers a dividend yield of 4.4%, which compares favourably with the majority of its peers.

Peer group comparison

With effect from 1 February 2018, BMPI and BMPG are both classified within the AIC Flexible Investment sector (they were historically in the AIC Global Equity Income and Global sectors respectively). Given the broad mandates of the portfolios, Hewitt believes that the current classification is more suitable. In Exhibit 13, we show the funds in the Flexible Investment sector with track records longer than 12 months. While the 17 peers have different investment remits, a comparison has some relevance. BMPI’s NAV total return is above average over 10 years (ranking fifth out of 16 funds – 53.4pp above the mean), while lagging over one, three and five years. BMPG’s NAV total return is above average over three, five and 10 years, ranking fifth and fourth out of 17 funds over three and five years respectively, and third out of 16 funds over 10 years (69.1pp above the mean). BMPI and BMPG are currently both trading at a modest premium, in a peer group where some of the trusts trade on significant discounts. Their ongoing charges are below average. BMPI’s dividend yield is the second highest in the group (1.9pp above average); this is partly due to the income transfer (in exchange for capital) from BMPG.

Exhibit 13: Selected peer group (at 13 November 2018)*

% unless stated

Market cap £m

NAV TR 1 year

NAV TR 3 year

NAV TR 5 year

NAV TR 10 year

Discount (cum-fair)

Ongoing charge

Perf. fee

Net gearing

Dividend yield (%)

BMO Managed Portfolio Income

56.2

(2.8)

24.8

32.6

188.7

2.5

1.1

Yes

107

4.4

BMO Managed Portfolio Growth

72.3

(0.7)

33.6

47.8

204.4

2.5

1.0

Yes

100

0.0

Aberdeen Diversified Inc & Growth

402.6

0.7

5.5

6.6

118.8

(0.4)

0.4

No

111

4.3

Capital Gearing

275.7

2.8

24.1

31.0

123.9

1.5

0.8

No

100

0.5

Establishment Investment Trust

35.7

(17.8)

18.6

13.4

127.1

(17.3)

1.3

No

100

3.4

Hansa Trust 'A'

240.6

1.0

32.9

29.8

163.1

(27.6)

1.0

No

100

1.6

Henderson Alt Strategies Trust

108.3

(1.1)

25.3

18.0

30.1

(15.8)

1.0

No

100

1.1

Inv. Perp Select Balanced Risk

7.8

(4.3)

16.0

19.8

0.1

1.2

No

100

1.1

JZ Capital Partners

399.0

1.0

25.9

34.7

(1.1)

(35.8)

3.9

Yes

106

3.9

Miton Global Opportunities

76.0

(1.2)

55.9

59.7

200.4

0.1

1.5

No

100

0.0

New Star Investment Trust

78.1

0.6

35.8

42.3

64.2

(28.3)

0.9

Yes

100

0.9

Personal Assets

918.0

0.1

19.6

28.5

114.4

1.9

0.9

No

100

1.4

RIT Capital Partners

3,122.6

1.2

24.4

46.1

126.4

9.9

1.0

Yes

115

0.3

Ruffer Investment Company

410.4

(1.4)

9.7

13.7

95.0

2.3

1.2

No

100

0.8

Seneca Global Income & Growth

77.7

(2.8)

27.0

37.1

148.9

0.3

1.5

No

102

3.9

Tetragon Financial

903.0

14.9

53.7

106.9

239.6

(43.7)

2.0

Yes

100

5.9

UIL

162.4

10.4

109.0

117.0

221.2

(38.2)

1.6

Yes

111

4.1

Simple average (17 trusts)

432.1

0.0

31.9

40.3

135.3

(10.9)

1.3

103

2.5

BMPI rank in peer group

15

15

10

9

5

3

9

4

2

BMPG rank in peer group

14

10

5

4

3

2

10

7

16

Source: Morningstar, Edison Investment Research. Note: *Performance data to 12 November 2018. TR = total return. Net gearing is total assets less cash and equivalents as a percentage of net assets.

The board

Historically, there were four independent non-executive directors on BMPT’s board, who were appointed shortly before the trust’s launch in April 2008: Richard Martin (chairman of the board and the nomination committee); David Harris (senior independent director); Colin McGill (chairman of the audit committee); and Alistair Stewart (chairman of the remuneration committee). On 9 July 2018, the board announced the appointment of Sue Inglis as another independent non-executive director. She is a qualified lawyer with a corporate finance background and is the senior independent director of The Bankers Investment Trust and an independent director of Baillie Gifford US Growth Trust.

 

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DISCLAIMER Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by BMO Managed Portfolio Trust and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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US

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street,

Sydney , NSW 2000,

Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by BMO Managed Portfolio Trust and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). 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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street,

Sydney , NSW 2000,

Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street,

Sydney , NSW 2000,

Australia

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