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The trusts moving in and out of BMO Hewitt’s growth and income portfolios

30 July 2018

BMO Global Asset Management’s Peter Hewitt highlights the latest additions and disposals to his trust-of-trusts portfolios.

By Jonathan Jones,

Senior reporter, FE Trustnet

Lacklustre performance and a manager change are reasons for the major portfolio changes in F&C Managed Portfolio Trust Growth and F&C Managed Portfolio Trust Income, according to BMO Global Asset Management's Peter Hewitt.

The fund manager has made more changes to his trust-of-trusts income portfolio in recent months, with eight new purchases compared with five sales.

A like-for-like swap saw Scottish American added to the portfolio with Securities Trust of Scotland sold off.

“Securities Trust of Scotland I have owned for three years but it has been lacklustre,” Hewitt explained.

The Martin Currie trust has been managed by Mark Whitehead since 2016 taking over from Alan Porter who remained with the firm.

The £188m trust is most heavily weighted to the US and Europe, with financials, industrials and tech stocks accounting for 45.2 per cent of the portfolio.

Over the past three years the trust has returned 47.32 per cent, 11.08 percentage points less than Baillie Gifford’s Scottish American trust.

Performance of trusts vs sector over 3yrs

 

Source: FE Analytics

The Baillie Gifford trust is managed by James Dow and Toby Ross, who joined as co-managers alongside Dominic Neary in 2016, although the latter stepped down in 2017.

“It is a more ‘growthy’ equity income trust but it does yield 3.5 per cent so it is quite good there,” Hewitt said. “It is global and it will not have Amazon.com or Tesla or anything like that but it has a more growthy bias – nor are you going to see BP or Shell in the portfolio. You tend to see more compounders so a Johnson & Johnson or Unilever.”

Currently the closed-end fund has a higher weighting to European equities (35.2 per cent), with 23.8 per cent in US equities, 11.1 per cent in Asian equities and 14.5 per cent in property.

The £527m trust is 14 per cent geared, is on a 3.8 per cent premium to its net asset value (NAV) and has ongoing charges of 0.8 per cent, according to data from the Association of Investment Companies (AIC).


Monks Investment Trust – another Baillie Gifford offering – and Allianz Technology Trust were also recently added to the income strategy despite neither paying a dividend.

“What were the best performing two stocks in the last six months? Those two – although I’ve not held them for six months,” Hewitt said.

The manager was able to add the pair thanks to a “monster” special dividend from one of his other holdings.

“I am replete with income at the moment, so I can afford to have maybe 5 per cent in total in stocks that don’t pay a dividend,” he said. “It is not going to completely change the performance of the income portfolio which has been uphill and into the wind. But, because I had this special dividend, I have lots of income so I can afford to do that. Eventually I will have to sell them but hopefully not for a bit.”

The other major change in his income portfolio has been the removal of HICL Infrastructure, a trust that hit the headlines at the start of the year due to its position in collapsed outsourcer Carillion.

However, Hewitt said the rationale for selling the £2.7bn investment company was more to do with politics than Carillion.

“I didn’t have a big holding in HICL but I just think the political element of being a PFI [private finance initiative] infrastructure trust is difficult,” he said.

“It is a well-run company and the dividend is safe but if you think of the next few years you might get more [Labour party leader] Jeremy Corbyn stories and he will either get into power quite soon or be threatening to get into power and they are going to renationalise most of [what the company does].”

Performance of trust over 3yrs

 

Source: FE Analytics

The trust, which saw its premium peak at 31 per cent in 2014 and was trading at a 7 per cent premium as recently as 2017, widened to a discount of 9 per cent earlier this year before bouncing back to a premium of 4.4 per cent currently.


Instead, Hewitt has instigated a position in the real estate investment trust (Reit) Assura to replace the infrastructure company.

“It is a big company but quite specific – it buys doctors’ surgeries and rents them out to GPs and effectively the rent is underpinned by the NHS,” said the manager. “It is not very exciting but it has got a 4.5-5 per cent dividend yield growing at 5-6 per cent and it trades at a small premium to NAV.”

Turning to F&C Managed Portfolio Trust Growth there have been relatively fewer changes, with just three new trusts added and five sold during the past 12 months.

Of these, the only one that has come in recent months is the departure of River & Mercantile UK Micro Cap, formerly run by Philip Rodrigs.

George Ensor took charge of the £108m investment company earlier this year following the departure of Rodrigs but has been hit by a share price collapse which saw it move from a 14.74 per cent premium in January to its current 5 per cent discount.

“The only trust I have sold in the last six months is the R&M UK Micro Cap trust and boy that had been a fantastic performer,” Hewitt said.

Indeed, since its launch the trust had returned as much as 131.53 per cent to investors by the end of January.

Performance of trust vs sector since inception

 

Source: FE Analytics

Since then it has fallen by 11.26 per cent but remains ahead of its IT UK Smaller Companies peers over the life of the trust.

Despite this, Hewitt said there is too much risk associated with trusting a manager that he does not know well enough.

“George Ensor may well be a super manager but quite often you find with smaller trusts investing in small companies it is more about the individual and while if they leave you might be okay, boy could it go wrong,” he said.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.