Investment trust insider on BMO Global Smaller Companies – James Carthew: How I’d shake up BMO Global Small Caps
The Global Smaller Companies sector is a fairly tight-knit group. Tracked by the Association of Investment Companies, it has a couple of investment trusts with a strong bias to growth and technology, those being Edinburgh Worldwide (EWI) and Herald (HRI), the quality-focused Smithson (SSON), the hard-to-pigeonhole North Atlantic Smaller Companies (NAS), and BMO Global Smaller Companies (BGSC).
Over the past 12 months, the star of the show has been NAS. HRI ranks second, despite the recent profit-taking in the tech sector. Its bias to the UK has helped it beat EWI by some margin. Middle of the pack is BGSC. Quality stocks have lagged as more cyclical companies have rallied on the promise of an economic recovery and SSON (which launched in 2018) occupies last place.
One year is perhaps too short a time to judge these funds. Over longer periods HRI and EWI vie for the top spot. At the other end of the scale, the real laggard is BGSC, which has a market capitalisation of £932m. However, I think its manager, BMO’s Peter Ewins, who has been running the fund since 2005, has been fighting with one hand tied behind his back because of its benchmark.
BGSC’s benchmark is an odd construct of 30%Numis UK Smaller Companies index and 70% MSCI All Country World ex UK Small Cap index. From the late 1980s until April 2005, the trust benchmarked returns against what was then the Extended Hoare Govett UK Smaller Companies Index. The rationale for this was that there was no global smaller companies index to measure performance against and the shareholders were predominantly UK investors.
From 2005 to April 2010, the benchmark was split 40:60 between the UK and the rest of the world: 40%Hoare Govett Smaller Companies Index and 60% MSCI World ex UK Small cap Index. The thinking was that the MSCI World Small Cap Index was too dominated by US companies and the board wanted the fund to invest more broadly. By 2010, the directors felt that the benchmark was failing to reflect the growing importance of smaller companies in Asia and emerging markets. Hence the MSCI Index was swapped for…
read more here