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BMO Capital & Income beats its benchmark once again

BMO Capital & Income beats its benchmark once again – The UK equity income trust, BMO Capital & Income (BCI), has reported annual results to 30 September 2019, with total return NAV  of 5.3% marking another year of outperformance against its FTSE All-Share Index benchmark, which returned 2.7%. BCI notes that under manager, Julian Cane, BCI has beaten its benchmark over 1,3,5,10 and 20 years.

Further highlights from the announcement:

  • On a three year view, the NAV total return was 29.9% compared to the benchmark’s 21.7% and over five years it was 56.9% against the benchmark’s 38.9%;
  • BCI is proposing to pay a fourth interim dividend of 3.75 pence per share to bring the fully covered total for the year to 11.4 pence per share, an increase of 4.1%;
  • The 4.1% increase is ahead of CPI inflation of 1.8% and will be the 26th consecutive year of increased payments;
  • The ongoing charges figure was 0.58%, the same as last year. This has fallen from 0.88% ten years ago to its current level, a reduction of more than a third over the period.

No derailment yet

Chairman, Steven Bates, said: “Writing this statement a year ago, markets were suffering a bout of the jitters that the global economy was too strong and that interest rates were on an upward trajectory. The old aphorism that markets always know what is what turned out to be wrong though. A year on, and the worry has flipped with concern now that the global economy is too weak, and this has triggered a new round of central bank easing of monetary policies: interest rates are falling in all major economies, and an unprecedented percentage of government debt trades at negative interest rates. This is very far from normal.

At the start of the year, investors worried about the whole panoply of geopolitical uncertainty and about the longevity of the economic cycle. A year on, geopolitical uncertainty has not improved and the cycle is a year older, yet neither has been enough to derail the equity market train.

Markets are still supported by low interest rates, which hide a multitude of sins. Until the tide goes out in the shape of higher interest rates, even poorly run companies are able to stay afloat. In some industries, though, even cheap money is not enough. Most obviously (but not only) the retail sector, is being severely disrupted by new distribution channels.

Add to this the uncertainty about the future, which is depressing capital investment. It is likely that future productivity and growth rates will be damaged by this lack of spending and all this points to interest rates remaining low for an extended period. The thinking in central banks is that the global economy is not robust enough to withstand higher rates and there is too much debt to allow a significant slowdown or recession. Furthermore, inflation remains unnaturally subdued, and policies designed to reignite it have failed, most notably in Japan. This combination, perhaps surprisingly, is not especially negative for equity markets, but nor are we off to the races. The most likely trajectory is that markets will grind higher, generating modest but positive returns. In this environment, skilled stock selection is more important than ever, and in this case, I believe you are in safe hands.”

BCI: BMO Capital & Income beats its benchmark once again

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