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THE GLOBAL SMALLER COMPANIES TRUST: £758 million fund seeking a mix of income and capital return for shareholders
Investment trust BMO Global Smaller Companies has just changed its name but it is the normal course of business for the £758 million fund which aims to provide shareholders with a mix of income and return on capital.
The fund is managed by long-standing manager Peter Ewins and is now known as The Global Smaller Companies Trust. This follows Columbia Threadneedle’s acquisition of the European, Middle East and African investment business of the Bank of Montreal (BMO) by Columbia Threadneedle, creating an asset manager with more than £530 billion under its wing.
“The trust’s name had to change,” says Ewins, “and the board that oversees the fund felt the new name best reflected what I do as a manager. As an investor, you get what you’re told: a trust with exposure to a wide spread of smaller companies around the world.”
The fund has 190 holdings, 180 of which are in companies. The remaining ten holdings are in investment trusts, primarily those with exposure to Asian or emerging markets. The use of these funds, Ewins says, goes way back — to the time when the trust was part of investment group Foreign & Colonial and its wealth skills didn’t extend as far as Asia. As a result, it used specialized funds to gain market exposure. “Maybe this will change under Columbia Threadneedle,” says Ewins.
While the trust was established primarily to provide returns on capital, it has an impeccable track record of dividends. Due to economic and financial crises, it has managed to grow its dividend annually for the past 51 years. And while the global economic outlook isn’t particularly good, confidence will continue this record.
In the trust’s fiscal year, which ended in April, it has so far paid a dividend of 0.57 pence per share, up slightly from last year’s payment of 0.55 pence. But last week the board of the trust said the full-year dividend would be 1.84p, 5.1 percent higher than last year.
Reassuringly, the trust also has more than a year and a half of income in reserve – money that can be used to support dividends to shareholders if portfolio income comes under pressure in the future due to a downturn in the global economy.
Ewins says the best way he can steer confidence through today’s difficult market conditions is not to have an overarching view of the global economy, but to assess the quality of individual interests. “The key is to ensure that the fund’s companies have sufficient pricing power to grow their earnings and profits against a backdrop of rising inflation,” he says.
Companies that he says should continue to grow include UK-listed Treatt, which produces flavors and fragrances used in consumer goods. Ewins says, “It has room to raise prices because what it delivers represents only a small fraction of a product’s total cost.”
Hotel Chocolat is another British company he likes, especially as it operates in the luxury goods market, where demand remains strong and there is room to drive prices up without curbing sales. By contrast, Swedish caravan maker Dometic is a stock it has removed from its portfolio due to supply chain problems and rising costs, which it has subsequently been unable to pass on to customers.
The trust’s annual fee is 0.78 percent, the stock code is BKLXD97 and the ticker is GSCT. The total return over the past five years is modest at 10.7 percent. An attractive feature is that the shares are trading at £1.39, below the value of the trust’s assets. In other words, they are cheap.