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BMO’s Hewitt keeps watch on Woodford and Darwall

2 August 2019

Peter Hewitt, the investment trust picker at BMO Managed Portfolio, has a close eye on Neil Woodford and Alexander Darwall as both fund managers go through very different periods of uncertainty.

Peter Hewitt, the investment trust picker in charge of BMO Managed Portfolio (BMPG), is keeping a close eye on fund managers Neil Woodford and Alexander Darwall as both go through very different periods of uncertainty.

The more uncomfortable situation for Hewitt is Woodford, whose Patient Capital Trust (WPCT) he has held for at least three years. Shares in the early-stage investor in healthcare and technology companies have been hammered since the suspension of Woodford Equity Income Fund on 3 June, due to the trust's large overlap with the fund whose forced sales are depressing its asset value.

Patient Capital, which was a 2.5% position in the BMPG's £75 million growth portfolio trust at the end of May, has plunged to a new low of 45p today. This is less than half its 100p launch price over four years ago, with the shares languishing at a 42% discount to net asset value following the revelation on Monday that Woodford had sold over half his stake, a move that provoked sharp criticism of the manager from analysts and investors.

At the same time Patient Capital's board announced a 'beauty parade' of investment groups interested in replacing Woodford as the trust's manager, although analysts believe a managed wind-down of the £739 million portfolio should be considered.

In annual results for his trusts this week, Hewitt said the situation with Woodford was being ‘monitored closely’. He could not be reached for further comment.

Less worrying for Hewitt is his growth portfolio's 2.1% holding in Jupiter European Opportunities, whose star fund manager Alexander Darwall has announced he will leave Jupiter Fund Management (JUP) next year to set up his own firm. 

It is anticipated that the board of the £970 million trust will opt to follow Darwall given his exceptionally strong, though at times volatile, performance. Over 10 years it has delivered a total shareholder return of 559%, well ahead of the 313% average of trusts in the AIC Europe sector. The shares have rallied 27% this year.

Hewitt said he would keep the Darwall ‘situation under review’, having held the trust for more than a decade.  

Defensives decrease downside

Defensive positions helped buffer BMPG’s separate growth and income portfolios from stock market volatility during the financial year.

The growth portfolio - which holds both Patient Capital and Jupiter European Opportunities - saw net assets dip 0.5% in the year to May though this beat the 3.2% decline in the FTSE All-Share index.

The £60 million BMO Managed Portfolio Income (BMPI) share class, which yields 4.4% income, grew net asset value by 2.5% for the year.

The strongest performers in the income portfolio included 3i Infrastructure (3IN), The Renewables Infrastructure Group (TRIG) and primary care property developer Assura (AGR), which all had a ‘similar theme which is they are not directly exposed to listed equities’.

BH Macro (BHMG), the London-listed investment company investing in the Brevan Howard Master hedge fund, was ‘unexpectedly’ the top performer in the growth portfolio.

‘It should be viewed as a defensive holding which holds or even increases its value in a bear phase in equity markets,’ said Hewitt of the fund which trades in interest rates, currency and bonds.

‘In the years since the financial crash the asset value has moved sideways due to the extreme low volatility in financial markets which created an adverse environment for macro styled hedge funds.

‘However, in the past year, volatility has begun to increase and the managers have been able to construct trades with attractive pricing and return outcomes. In addition, the fees on the company were reduced and the discount has tightened which has been behind a 18% rise in the share price.’

Technology trusts Hg Capital (HGT , a private equity company and Allianz Technology (ATT) were also among the producers of the best returns, along with Nick Train’s Finsbury Growth & Income (FGT) fund, thanks to its ‘enduring exposure’ to consumer brands with a global presence.   

Hewitt has managed both BMO Managed Portfolio since 2008. Over 10 years the growth shares have done better, delivering a total return including dividends of 198%, while the income shares have produced 176%. The FTSE All-Share has grown by 150% and the MSCI World index by 248% in that time.

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