Rollercoaster ride for shareholders in BMO Global

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BMO GLOBAL SMALLER COMPANIES: Rollercoaster ride this year for shareholders in a small firms trust with a BIG income record

It has been a rollercoaster ride this year for shareholders in investment trust BMO Global Smaller Companies. Over the past six months, the shares have fallen by more than 20 per cent, but they have bounced back sharply in the past 12 weeks by nearly 9 per cent. 

Investment manager Peter Ewins, currently running the £810million fund from his attic at home in Tunbridge Wells, Kent, says the past four months have been a ‘difficult and challenging times’ for investors. 

Furthermore, although he likes to be optimistic as a fund manager, he accepts that the future remains fraught with investment danger. ‘We’ve got a serious recession ahead,’ he says, ‘and as a result we need to be cautious in the near term. The glimmer of hope on the horizon is that smaller companies tend to do well when economies come out of recession.’ 

The trust is in defensive mode. It has a diversified portfolio of more than 180 holdings spread across the globe, but with an emphasis on North American and UK smaller companies. By way of comparison, the £1.8billion Smithson – a rival global smaller companies fund run by Fundsmith – has only 31 holdings. 

BMO Global also prefers to access smaller companies in the Far East or listed on emerging markets via investment funds managed by rival asset managers – funds that in turn have diverse smaller company portfolios. Indeed, the trust’s five biggest stakes are all in funds, run by Aberdeen Standard, Eastspring (part of Prudential), Pinebridge, First State Investments and Utilico. 

The final damage-limitation tools stem from the trust’s decision in March – ahead of the coronavirus pandemic – to get rid of all its borrowings, thereby limiting exposure to falling markets – and Ewins’ thorough lockdown review of the trust’s holdings to see if any of the companies ‘were financially compromised’. 

The result of this portfolio review has been the disposal of a number of holdings, including companies operating in the energy sector and vulnerable to a sliding oil price – the likes of US- listed Core Laboratories and Norwegian-based TGS Nopec. It has also prompted the building of stakes in a number of defensive stocks, and companies whose share price had fallen sharply – therefore providing Ewins with a ‘valuation opportunity’. 

Among the ‘defensive’ purchases are shares in US company Nomad Food, owner of classic brands such as Findus, Birds Eye and Aunt Bessie’s. ‘Lockdown has resulted in more people eating frozen food,’ says Ewins. Other new holdings include Stock Spirits, a UK-listed drinks business operating in Poland and HelloFresh – a provider of meal kits to cook at home. 

Although the trust’s overall long-term performance record is bettered by rival trusts such as Edinburgh Worldwide (managed by Baillie Gifford) and Herald, it has a record of delivering a steady increase in dividend income. 

It has pushed up its dividends every year for the past 50 and with the equivalent of more than a year’s income in reserve, it is well placed to continue growing it. But the income is modest, equivalent to just 1.5 per cent a year. 

Fund Calibre – a scrutineer of investment funds – includes BMO Global in its list of ‘elite’ global equity funds.

It says the trust ‘could be an excellent option for investors seeking exposure to smaller companies who are aware of the additional risks in this part of the market’. 

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