UK weighs on BMO Global Smaller Companies

Baillie Gifford Japan

Performance figures over BMO Global Smaller Companies’s (BGSC) annual results period to 30 April 2020 reflected the sharp fall in prices over March. A total NAV return of (13.8%) was slightly ahead of the benchmark’s (14.1%), while the shares were down (16.5%) – they have increased by about 6% post-period.

BGSC’s portfolio was geographically allocated as follows, as the year-end (the figures in brackets represent the allocation level at 30 April 2019):

North America

40.1% (41.1%)


25.6% (26.1%)


12.6% (12.0%)

Rest of World

11.6% (11.2%)


10.1%   (9.6%)

The table below represents geographical performance, in total return terms, to 30 April 2020 (the second column represents the portfolio and the third column the local smaller companies index for the particular country):







North America






Rest of World*


 -13.4% (Pacific ex Japan)

 -32.0% (Latin America)

UK weighed while Japan proved resilient

Chairman, Anthony Townsend, had this to say, on performance: “A long-standing cause for investor concern has been the fractious relationship between the US and China. The imposition of an escalating series of tariffs on each other’s goods, led to a general weakening of global industrial demand through the second half of 2019. While a “phase one” agreement in January between the countries defused some of the tensions, risks of further confrontation remain in what is an election year in the US. The US economy was slowing ahead of the arrival of the coronavirus. As elsewhere, the equity market here fell sharply in the spring and more than 30 million jobs have been cut already in the country. As in most other parts of the world, the Federal Reserve as Central Bank is making massive interventions in the financial markets and the government is stepping up direct cash support to those members of the population and companies impacted most by the crisis.

The UK political scene was far from becalmed too, with the Conservative party changing leadership and subsequently winning the general election in December which allowed Brexit to be voted through parliament early in 2020. European political tensions were also in evidence over the last year and the current crisis again risks more division between the south and north of the continent. European small caps held up better than their UK peers over the year, with the UK market enduring a particularly tough time in the last quarter.

Some of the key Asian markets performed better than those in the West, with Chinese stocks doing well so far in 2020 following the trade deal. Virus case numbers fell faster than we have yet seen in Europe, allowing for a more significant reopening of the economy. Japanese stocks proved resilient over the year, with generally low levels of corporate leverage supportive at this time, and the yen was strong, along with the US dollar.

In terms of sector performance, it was once again a good year for Technology and Health care stocks. Collapsing demand for oil as transportation market demand slumped, meant the opposite was the case for Energy stocks, and Industrial companies also tended to struggle. The market shake-out in February and March was particularly felt by companies with cyclical earnings and high borrowings. Investors moved into safer, more defensive stocks and those less impacted by the virus.”

Looking for valuation anomalies

Anthony added: “Giving an outlook for market performance at this stage with any degree of conviction is very tough. A large number of companies held in the portfolio have withdrawn earnings guidance for 2020, rendering near term valuation metrics redundant. The harsh reality is that profits will be sharply down for many companies this year. Against this, the dramatic scale of Central Bank and government intervention is providing a great support to financial markets and seems set to stay. With the lockdowns being eased back, share prices have enjoyed a bounce at the start of the new financial year.

There will certainly be opportunities for valuation anomalies to be taken advantage of in the coming period.” 

BGSC: UK weighs on BMO Global Smaller Companies

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