CT UK Capital And Income Investment Trust Plc (CTUK) Earnings Call Transcript & Summary

Good morning, and welcome to the BMO Capital and Income Investment Trust PLC Interim Results portfolio positioning and outlook presentation. [Operator Instructions] The company may not be in a position to answer every question received in the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to split the following poll. I'd now like to hand you over to Head of Investment Trust, Christine Cantrell. Good morning to you.

Thanks very much, Alessandro. And yes, we're thrilled to be here. My name is Christine Cantrell. I actually lead the distribution efforts for BMO's investment trusts. And the main purpose of today is to go through BMO Capital and Income Investment Trust with the manager, Julian Cane, who has just passed his 25th anniversary of running the trust. So we're thrilled to get his thoughts both from the near-term and longer-term perspective. And I just also want to highlight that BMO Global Asset Management has been acquired by Columbia Threadneedle. So in due course, you'll see of the brand. Now combined, we're one of the largest U.K. asset managers by AUM we're in the top 10 and Julian is integrating with the Columbia Threadneedle investment team. He's on the U.K. equities team. And we will hear more about that and the other thing to highlight is that the interim results for this company were recently released and Julian can reference that and also the dividend that was announced and you can also see that on our website or the BMO Capital and Income Investment Trust website. So with that, I'll pass over and we're really looking forward to hearing your questions and getting them answered at the end. Thanks.

Thank you, Christine, and let me extend my welcome as well to everyone who's taken the time to join us this morning. So presentation should last 20, 25 minutes or so, we'll go through some of the key aspects of the company. And then as being said, please submit questions as we go along or leave them to the end if something there? So Christine already touched on the biography as well. So let's cut straight to the agenda for the meeting. So we'll cover -- over the course of the presentation, some of the basics of the fund characteristics, what it is that investors get. We'll have a look at the market conditions that have been around particularly since the start of this year, there really has been a change. We'll talk about our response and how the portfolio is currently positioned. As has been mentioned, dividends are a key part of the proposition for our shareholders. We are a dividend hero -- an AIC dividend hero and we'll talk about how we plan to keep that status. And then perhaps most importantly, we'll turn to the outlook, what's uppermost in our thoughts and how we're planning for the future. So when investors look at this portfolio, they'll see a well-diversified fund portfolio of about 50 stocks. Now there is no hard and fast number that we stick to. It has changed quite a lot over the years that definitely been one of the evolutions while I've been managing it. But we are very focused on individual companies and, of course, to make those individual companies impact portfolio. Most it helps to have a reasonably concentrated portfolio, but obviously, we have the benefits of diversification as well. So we're trying to manage that balance. We look carefully at the 3 main lenses through which we analyze companies. That's quality, management and valuation. Perhaps most importantly, and it's definitely worth highlighting it start. We believe it's very important to distinguish between value and low price. Now everyone does this in a day-to-day way, if I said a car cost GBP 40,000, you might think, well, it's pretty pricey. If it's a beaten up secondhand Yaris, that would be pricey if it's a new Ferrari, it wouldn't. So price in its own way does not -- the sticker price doesn't tell you very much. So we look very carefully at the value of what you're getting for that as opposed to just fixating on the price. Our portfolio has quite an exposure away from traditional high-yield mega cap stocks. Now that is quite different to a number of our peers, and it's worth just exploring why that is. We do a lot of research before we buy a company. So we have a great deal of confidence. And that naturally leads to a buy-and-hold approach. We have low turnover. Performance, of course, is one thing that we, as an investment team want to generate, but a certainty in life is cost. And we have amongst the lowest cost ratio in the sector at less than 0.6% cost compared to average net assets. We think there are benefits to a bit of balance sheet gearing over time. But we do control that and it's a pretty modest level some compared to some, and it's an optional extra. In terms of size, our current market cap is around GBP 330 million to GBP 340 million. We're small enough to be nimble but also big enough to have presence. And of course, as Christine mentioned, we are integrating within CT U.K. equity team, which in its own right, has I believe it's about close to GBP 10 billion. So It's certainly a very large, very well-resourced team that will be joining. And of course, in investment trust, it's also important to remember there's quite often a difference between share price and the net asset value per share. We have a very well-established discount control mechanism to try and bring those into line to make sure the shareholders are buying and selling shares at pretty close to the underlying NAV. So flicking to our process. As I mentioned, we look through 3 lenses when we're analyzing companies and it's just worth spending a moment or 2 on these to highlight what we mean because it can -- there can be differences between our definition of some of these and perhaps other teams. So by quality, we don't necessarily mean consistency of results. I think that's what often some people think of as quality, but we're much more focused on defendable business models, which, in their own way, generate large margins, high returns to equity investors. So it's more about the size of the return, particularly for return over the cost of equity than it is necessarily about the consistency. We can cope with volatility as long as the returns are high and sustainable. So we're looking for durable franchises. That's really what we mean by quality. We recognize, of course, that management is an integral part of the operation of the business, and we want them to be tied in to the business wherever possible. So we make sure that their interests are aligned, perhaps both through an existing shareholding and also through management incentives. And in terms of valuation, we have a range of valuation tools because different companies and different sectors really required to be analyzed in different ways. But the root of it for the vast majority of companies is a discounted cash flow. And that is very much based with one eye on the past. We look at the returns that companies have generated going back to that idea of quality. And we extrapolate those out in the future, if it's deserved. So that's the subjectivity of course, looking at the future parts, but it's through this discounted cash flow, it's making forecast into the future and applying the appropriate discount rate to make sure that those future earnings and cash flows are discounted at the correct rate to [ as a ] current value. Importantly, ESG factors are integrated really into all of these lenses that we look at. Even into the valuation, and I think that's relatively unusual within external modeling of companies. So we explicitly value vary some of the factors in our models depending on how we rate companies on these ESG factors. As I mentioned earlier, there's clearly been quite a change in stock markets since the start of the year and also be a little bit before then. And one of the biggest changes, of course, has been inflation. Now whilst the onset, it appears that inflation perhaps was really a result of supply chain issues. Obviously, China being in lockdown, shipping being all over the place. So the supply chain issues did obviously impact inflation at the start. But of course, the Ukraine situation, Russia's war there has obviously escalated those -- the inflationary pressure, enormously, most obviously through energy prices increasing and also food prices, too. And that's obviously feeding through into a cost-of-living crisis for a large number of people. The other change, of course, is that central banks having had very, very loose monetary policy in response to COVID have perhaps a little later in the day, realize that before it was too far down on the accelerator. And they've been easing off on that monetary policy to interest rates have been increasing and there are plans for quantitative easing to go into reverse. And obviously, both of those factors, interest rates and quantitative easing has been positive for markets. So it's only natural for the reverse to be true when those factors are tightened and it's less favorable for markets. And bond yields increasing is obviously a consequence of that. And I talked a moment ago about how we value companies with a discounted cash flow. And I think importantly, when we're analyzing companies, we very much believe that growth prospects are a good thing. As I said, we're looking for companies with durable franchises, which should be able to replicate their profitability over long periods getting out in the future. And those growth prospects mathematically, are hit by an increase in discount rates. So whilst we've been looking for companies with greater growth prospects, they have been the valuations also have been hit harder by rise in interest rates and bond yields than perhaps other companies, which might be on a declining curve, which might have a limited shelf life. So that's definitely one of the factors that has been toward disadvantage part related to some others investing in those more static mega caps that I was talking about earlier. It's worth just spending a moment or 2 seeing how this process has been in action. So our portfolio turnover, as I mentioned, has historically been low. I didn't put a number on it at that stage, but by any standard, it is really very low. We have very much a buy-and-hold mentality. We aim to invest in good stocks right upfront. And if we have got that stock selection correct, then there shouldn't really be much need to sell through over time. We're looking to compound returns rather than to try and trade around stock market noise. So our turnover's been less than 20% over the last 10 years. We've been pretty consistently at that level. Some years more, some new year less. ESG, as I mentioned, is fully integrated into everything that we do. The consequences of this are that, for example, Shell and BP, leading energy companies, of course, are both outside of our 10 largest holdings despite the fact they are a very, very large part of the U.K. index, but it extends not just to oil or mining companies. It also means that when we're looking for the quality within other areas, we tend not to focus on the biggest companies, but we might be looking at challenges or medium-sized companies which are up and coming. So our largest bank holding, for example, is not HSBC. It would be in the index. We view that as perhaps rather challenged, certainly, a pretty low returning. And our largest bank holding and indeed holding overall is OneSavings Bank where return on equity has been consistently over 20% to multiples of what the High Street banks have been achieving, and it has growth as well. So that would be a prime example of where we differentiate from the index and from a large number of our peers. We also think, over the long term the telecom sector has been pretty challenged strategically. And I suggest if anyone thinks BT or Vodafone are about to reinvent themselves, I wouldn't entirely discount it, but it's always worthwhile looking at the share price chart for the last 10 and 20 years of those 2 companies and their earnings. And you'll see that really they've achieved remarkably little. Now the future may be different. That's obviously what we have to think about. But the past is often a good starting point to analyze and think about why these companies might have considerable challenges. We'll come back to this last company, Intermediate Capital perhaps a number of times because it does exemplify some of the factors that's going on in the market. But we've held the company for well over 10 years. We've supported it along the way when we had a rescue rights issue in the global financial crisis. But the share price has been an absolute stellar performer despite the volatility, and we'll come to that in a second. So our own performance against the index has been more challenged over the last 5 months or so thinking of the period since the start of the year through to the end of May. So whilst we're behind the index, I mean the indexes -- All-Share index has had a small positive performance, and we're down relative to that. It's obviously forced us to go back, encourage us to go back and think about all of our companies that has the situation that they are facing really changed or is it perhaps just a change in valuation? And when we look at individual companies, we have found that -- for the most part, their prospects are not really materially different now compared to where they were at the start of the year despite all the noise that's going on. And it's really the ratings valuation that has taken quite a beating. So just thinking of that example of Intermediate Capital, its earnings forecast for this current year has really not changed over the last 5 months. So there's been no change in its forecast earnings, all other things being equal, and it's a rough proxy. The value of the company shouldn't really have changed all that much and yet its share price is down 28%. So something very material has happened to the share price, but really not to the company itself is now trading at around 12.5x future earnings despite historically having traded on more than 20. It's one thing for markets perhaps to be a little bit cautious that degree of derating is really severe. And in our view, definitely not justified. It's also true for a number of other companies, Vistry, the house builder used to be Bovis. That also has seen really no change in its forecast earnings for this year, its share price is down 24%. So it's not unique to Intermediate Capital by any strategy. It was just an example. It's an effect that's gone across quite a large number of companies. The only way really to have performed strongly would have been to have strong weightings in the oil sector, in the mining sector and to an extent in tobacco as well. So we are confident of our existing portfolio. We haven't really changed very much. We've kept our portfolio turnover low, but of course, we've gone back to reaffirm our thesis for each of those individual stocks. Despite the turmoil amongst those individual stocks and tax valuation, we've done our best to make ensure that our own share price, the share price of BMO Capital and Income is close to the underlying NAV. So we've had a combination of share buybacks and share issuance to make sure that despite what's happening elsewhere, the share price and the NAV are closely linked together. And in a way, that provides not only create a certainty for shareholders that we have this commitment, but it also provides greater liquidity. So if companies with larger investors were wanting to invest a reasonable amount of money and there wasn't the daily liquidity, the apparently daily liquidity in our company. We can issue new shares. And likewise, we can buy them back at the other end of the process. So we have arguably more liquidity in our shares available than perhaps is transparent, first thing. Here is a slide, perhaps for questions later, more than running through an exhaustive detail, but it sets out the largest active positions in the portfolio as they were at the end of March. March was our half year-end. So this obviously, a public knowledge. As I mentioned, OneSavings Bank is our largest absolute and relative holding Intermediate Capital we've talked a little bit about Secure Income investors may be familiar with that. That's a very high-quality property investor, which has just gone through in the process of going through a merger with LXi and similar property company. And at the other end of the spectrum, some of the mega caps that I was talking about at the bottom of the page, so HSBC, we don't have any. You might want to think of us borrowing the amount that we could have waited if we were an index fund in HSB and putting it into OneSavings Bank instead. That's one way of thinking of the portfolio. Shell likewise, we're underweight and the mining sector Glencore, Anglo American, likewise, we don't have great holdings there. It's pretty obvious that the mining sector is going through a very strong period at the moment, a mixture of rebound from COVID together with interruption of supply inflation causing commodity prices and obviously it provides a very favorable sweet spot for these companies. But it's difficult to judge how long that might last, either in terms of their selling prices for the commodities or indeed their cost base. Certainly, that's the thing that's come back to [ trip out ] mining companies in the past that cost base is -- can inflate almost as quickly as the selling prices, and therefore, their returns are not really all that sustainable. Turning to dividends. As I mentioned right up front, dividends are an important part of the proposition of this company for our shareholders. And it's very notable that dividends have been rebounding strongly in the U.K. market. With our interim results, just recently announced from our own portfolio. We saw our income, which, of course, is the dividends you received from the portfolio. Our own income had increased by 60% year-on-year indicating a very strong bounce back, and our earnings were up 70%. A lot of that, that really is just a straightforward bounce back from the turmoil of the stock market and dividend flows during COVID. On a 2-year basis, our earnings are down by 4%. So yes, it's been very strong recovery, but we're not quite back at a company level to pre-COVID levels, but we're definitely on track. There's definitely been a considerable benefit from special dividends as well. Those have boosted the overall income that we and the stock market has been getting and those have been particularly coming from the mining companies. Mining companies to their credit have decided to pay special dividends rather than reflecting the strength of commodity markets rather than to integrate them into an ordinary course of dividend flows. So they're recognizing conditions are exceptional. And because of those exceptional profits, they are passing on special dividends. So it's not an ordinary part and shouldn't necessarily be expected to continue far out into the future. But those have been a major part of the driver of the return of dividends in the stock market as a whole. In terms of our own positioning, our own dividend yield at a portfolio level is really not so very different to that of All-Share index. And that I think gives us quite a lot of flexibility perhaps compared to some of our peer groups. So it means that we are able to invest across the whole spectrum, we can have high yielders obviously, if we wanted. But we can also invest in companies perhaps with a lower starting yields but with better growth prospects. So we are not just forced into the highest yielding companies as we might be if we had to really provide a very high dividend yield to our investors. But we are able to have a much broader and much more flexible approach as to where we invest. And that's, we believe, over the long term, should give us much better total returns because we should be able to catch more capital growth and dividend growth rather than just going for the way of high dividend yields in year 1. So our own revenue reserve at the end of March was GBP 9.6 million. Now why is this important? Well, as I mentioned, over the last couple of years, dividend flows within stock market have been very interrupted by COVID and economic disruption. And so it was vital for us to be able to have flexibility, the ability to draw down on our dividend reserves in order to be able to pay a steadily rising dividend through to our investors. So we use this revenue reserve, which has been created in good times in order to be able to smooth our dividend payments through to shareholders. So we had -- the good news is we have GBP 9.6 million left in that revenue reserve. Also, throughout the first half, we were able to increase that dividend reserve, and that's definitely a sign of recovery. So compared to the annual cost of our dividend, we don't have a full year's dividend in reserve, but we clearly have a very substantial buffer. And that, together with the dividend that we are receiving on an ongoing basis from our portfolio really gives us strength and flexibility to be able to increase our dividends in good times and in bad. So we are very proud to be an AIC dividend hero. We've increased our dividend every year since launch in '92. And that's a record that we very much strive to carry on to extend. So turning to the outlook then. I think it's not just stock market conditions that have been difficult, but I think there have been a number of perhaps deeper-seated questions that have arisen. And most -- something to most macro level have geopolitical and economic conditions really changed. And perhaps if one thinks sort of path dependency as a sort of a mental model to economy in U.K. and the West has largely gone for a large number of years, even decades. Obviously, with disruptions like the global financial crisis. But largely, the model had been evolving but trending steadily and evolving. And I think it's arguable that with COVID and perhaps to a lesser extent, the Ukrainian war, that there's been a significant disruption to the path that we were on may have been disrupted so that we are as an economy, taking a different route to what we might be working from home would be an obvious example of that. It now seems relatively standard for people to work at home, whereas previously that wouldn't have been the case. Another obvious theme along those lines would be whether globalization has run its course. Now the benefits of globalization, I'm sure everyone could talk about, but clearly, being able to access cheaper labor force out in the Far East, for example, and the benefits that, that had on lowering inflation in the West, were pretty clear over a long time periods. But if that's going to go into reverse because just in time is going to be replaced by greater resiliency, then that clearly has an inflationary impact on the West as well as obviously taking time for reallocation of resources. So it's a trade-off between do I want a great resiliency. Do I want to know that I can't get my products because they produce close at home or am I prepared to take a bit of a chance because it might be disrupted by war, by COVID or other factors or geopolitics. Obviously, the question about inflation, whether it's transitory on the left, I put a chart, which is from the Bank of England. It is their most recent chart. It shows the plan of expectations looking out into the future where the orange -- dark orange is obviously the most what they believe is a most likely course. So they do forecast inflation to come back down. But obviously, their track record in this has been somewhat lighted albeit by rather exceptional circumstances that they couldn't perhaps a forecast at least at the outset. The part of future inflation clearly does have implications for where interest rates and bond yields and therefore, equity markets might go. Rumbling along, of course, we also have the cost of energy transition. I take all forecasts on numbers with a very light pinch of salt, but [ $275 trillion ] to transition to a zero-carbon economy through to 2050. I mean the numbers are so stratospheric, that of course, it's difficult really to visualize what that means. Nonetheless, it's clearly not a free and easy thing to achieve. However, desirable it may be what implication it has for the companies what opportunities it throws up indeed for different companies is definitely something to think about. More broadly, I think we've also got questions about the size and ambitions of the state when I started managing this trust, to state we're spending 35% of GDP. So just a bit over 1/3. We're now obviously largely COVID affected. The state spent 52% of GDP last year. Now again, it's Bank of England chart on the left, that's forecast to drop pretty rapidly. But I think there are a number of straws in the wind to question that and you just lost a day or 2. Clearly, there's been chaos at airports, what's the government going to feel about it? Well, the commercial enterprises really why should the government be doing much amount? It can try and not hits together, but I think the involvement of the state has been called into many areas that historically wouldn't and there seems to be remarkably a little resistance from that because people tend to think that the state spending is free. It's got nothing to do with that. And while the magic money tree is an operation that possibly is true. But of course, the state spend our money, and that does have large implications. So not just personal tax rates, but of course, corporate tax rates are going up, so 19% up to 25%. That's already scheduled, but arguably maybe it's going up more than we've got windfall taxes. So the whole balance between state and private enterprise, I think, is more up in the balance now than it has been for many years. Overarching all of this, of course, we have the monetary super cycle we've got central banks around the world, putting up interest rates, bond yields are rising, quantitative easing being replaced by quantitative tightening. As I mentioned earlier, clearly, that's rather more of a headwind for investment markets than perhaps it should have been. So that's rather more than 4 horsemen of the apocalypse which is traditional. But I will leave you on this last slide with some blue sky, still cloud, but there is blue sky. That's sort of hood, which may be long unwinding, but I think we can still see progress for the equity market. And I think the first question investors really need to ask themselves are, what are the alternatives to equity. The historic answer has been, there is no alternative. And that I think probably is still the case. So I personally, people might want cash for flexibility, but with inflation clearly out of the bag for the moment, even if it proves to be transitory, the value of cash is eroding pretty rapidly. Likewise, nominal bonds, I think already offered pretty low yields. I certainly don't really give you any protection of instant relation at all. Real bonds, inflation linked are expensive, but it will give you protection. By contrast, equities and particularly good quality companies should be able to give you some sort of protection. And that's what we believe is the attraction of companies such as in our portfolio is that they have the ability to control their prices. They have the ability to control their costs better than many other companies. So we think there are a large number of -- maybe not a large number of group but there is enough companies to produce a portfolio of companies with real interesting prospects in their own right. And when that's coupled with U.K. stock markets, been pretty low devalued by international comparisons. We think that makes quite a compelling reason to have a closer look at the portfolio such as this. So those are for my slides. I hope people have found that interesting. I've seen 1 or 2 questions or more that have arrived over the course of that. So let's take it to questions. I think, Christine, you are going to lead us through those.

Julian, can I say thank you very much for your presentation. [Operator Instructions] But just while Julian and Christine take a few minutes to review those questions submitted today. I'd like to remind you recording of this presentation along with a copy of the slides and the published Q&A can be accessed by our Investor dashboard. As you can see, we received a number of questions throughout as presentation, and thank you to all the investors for submitting those. And Christine, if I could just hand over to you to read out the appropriate questions, that would be great, and then I'll pick up for me at the end.

And thanks very much, Julian. I think it's most appropriate to start off with some of the macro questions that have come through. And just because you were commenting on those your views more recently. So what is your view on stagflation and its potential impact on the portfolio?

Yes. Now stagflation, obviously is that particularly nasty combination of limited growth and high inflation. And arguably, that's where we are now. I'm very conscious as I've spoken in the outlook at a macro level, and that is obviously a macro question. But when we look at the companies we invest in, their own experience often is quite a long way of drift from that whole to macro economies. Although the economies are a whole may not be experiencing much growth, that need not be true at an individual level and isn't true it's an individual level for a lot of the companies we invest in. So we are able to find companies with reasonable growth prospects at attractive valuations. Stagflation does have that -- so perhaps that answer the growth angle. The inflationary angle also, I think, is in there because the companies that would be worth impacted by inflation -- stagflation would be those that really perhaps are just price takers, they're selling commodities where price is determined by someone else by a general marketplace. And yes, the costs are forced on them by the rising cost of labor or increasing cost of imports, whatever it may be. And those companies would typically have pretty narrow margins anyway. But we deliberately folks have always fixed our attention on companies with a much higher quality earnings stream. So they are able to turn in the price at which they sell within reason, obviously, and also are able to control their own costs at a much -- in a much better way than an average company. So yes, stagflation wouldn't necessarily be good, it won't be good for the economy or stock market as a whole, but we think there is a subset of companies, which should be able to navigate the ground relatively well. We prefer not to have it. Let's be clear, but it's about where you invest to get around it.

And actually related to that question, David is asking, can this company keep increasing dividends ahead of inflation over, say, a 3- to 5-year view?

Well, that depends on a number of things. So I think, first off, our own dividend receipts would be a part of that. As I mentioned, we've had a strong bounce back from pre-COVID -- from COVID level, so where we close to pre-COVID. But since the end of March, I think the signs have remained encouraging. So 2 companies within our top 10 dividend payers have both announced very substantial increases. So Intermediate Capital, sorry to come back to that yet again. It had final results just last week. Its dividend for the year is up 36%. No problem there. Secure Income REIT, we also -- was in that list of top 10 holders. I just touched on it very briefly. It's going through that merger with LXi and as a result of the merger, its dividend over the coming year will be 31% higher than it was last year. So that's 2 companies within the top 10 that have announced dividend increases of more than 30%. Now that, of course, is exceptional. I'm not trying to extrapolate from that. But I think it is indicative that there are companies within the portfolio, which are putting through good increases. Likewise, OneSavings Bank, it's dividends still recovering from COVID. So it will produce a set of dividend payments this year as opposed to an interacted set in the previous 12 months. So on the dividend receipt side, I think some of the increases coming through as strong as we've ever seen. But of course, the question was how does our dividend flow related to inflation? Can we beat inflation? I'm not going to forecast what inflation would be. If it falls back to 2%, I would have complete confidence. If it stays at 9% for any great length of time, that clearly will be more of a challenge, but we do have a dividend reserve to draw on. And we do have some good receipts coming through. So we can't make forecast, but it's a record, we're proud of and we're going to strive to extend it as far as we can.

Great. You've touched on sectors, some that you don't like, such as telecoms, et cetera, but Mark is asking, do you see any particular sector offering greater investment potential now? Would it be, say, financials or?

Yes. if one would look at the portfolio, you see that financials do make up a large part, largest single part of the portfolio. And it's not perhaps because we want to invest in financials per se. I mean there are some micro arguments for saying financials should perform quite well in a rising interest rate environment. But that's not really what we're trying to play. We are looking at individual companies. So it can be misleading because OneSavings Bank, for example, is not within the bank sector, it's within a diversified financial subsector. So to just look at those crude headings, I think perhaps rather disguised where we are trying to get some of the advantages. It's at a stock level rather than security level. There are also some anomalies. So within the financial sector, we as it officially described and as we benchmark it. We hold 2 music companies Hipgnosis and Round Hill. So technically, they are financials and that's where we categorize them, but really, the underlying characteristics are much more consumer based. So there is definitions matter if people are looking at sectors. We're definitely cautious on -- mining cautious on oils despite the fact appreciating that they are probably pretty cheap on a very short-term basis, but we questioned longevity of the returns. We have a little bit of exposure to tobacco. But again, it seems to us a business that is in a pretty long-term decline. And obviously, they're trying to reinvent with different products. Telecoms, as mentioned, we are underweight. In utilities, I think is possibly an interesting area. Historically, we've been scaled off because -- scaled off would be wrong, we've been reluctant to invest because returns haven't been all that exciting and because returns when they do improve they are often then snatched back by the regulator. But of course, some of them are inflation linked, and that may prove to be interesting. So it's a sector we're looking at it a bit more closely than perhaps we would historically, but obviously very alive to the fact that windfall taxes are back out of the bag and any company in that quasi-public arena or going very face-to-face with consumers has to be extremely careful about how they are pricing products and services. So it's not to be seen to be taking advantage of customers while cost of living is such an issue.

Great. And we shouldn't ignore the one that was pre-submitted. I'll just comment on that and ask you, although it's very difficult. I don't think you possess a crystal ball, but somebody has asked what -- when do you think that the value of investments will rise back to where they have been approximately a year ago?

Well, yes, I mean it's absolutely the right question to think about. I am not the right person to be able to answer it nor is anyone. But I think anyone who volunteers an answer to this. I think you would have to call into question how honest they were being. But I think what we -- how we think of this is perhaps to look at it the other way around and perhaps to go back to the thing on one of the earlier slides. So we can't control or predict where ratings valuations will go for companies. That is a mixture of fear and greed. That's historically what's driven stock market it's the mixture of flowing some money in and out of individual stocks and sectors. So we can't predict how that will go, but we do look very carefully at the underlying earnings and the cash flow and the dividend to come out of companies. And at least up to this point, what we have seen from companies, what companies are telling us is that, yes, things are sometimes disjointed and operations all back to pre-COVID levels necessarily. But for the most part, companies are able to have a bounce back in earnings and cash flow. So at a company level, things are improving. When that would be reflected in valuations, we don't know. But I think there are 3 or 4 straws in the wind that back half some of the statements there. So private equity has been taking an increasing interest in U.K. companies. I think it's the argument that if stock market investors aren't putting the right valuations on these and private markets will do. One of our holdings Countryside Partnerships that used to be Countryside Properties. It's the partnership of house builder. It announced that it had a couple of bids from Inclusive Capital just the other day. So private equity is trying to take advantage of some of these low prices. Quite literally, yesterday, we had an activist investor Nelson Peltz with Trian taking a stake and a ball seat in Unilever. So again, external investors are able to see the value in the U.K. market. And companies themselves, they're doing this 2 ways: one, through mergers, creating value that way. So Secure Income REIT and LXi would be an example of that by combining their 2 portfolios, they're creating more value. But they're also buying back shares, a large number of companies on our portfolio are buying back their own shares. Now I think this tells us 2 things, not only -- do they think that their shares are cheap in the stock market, so they see value there. It also tells us that they are not concerned about their own balance sheet to going into the COVID crisis, a number of companies were stretched financially, perhaps too much debt or not enough cash. That was put right during the crisis to the rights issues or placing companies strengthen their balance sheet. But they now found on the way out that their balance sheets, their financial situations are strong and their share prices are weak. So it's a natural response for them to buy back their shares. So I can't forecast when the stock market and personally or particularly when our portfolio will bounce back in value, but there are a number of indicators that other people perceive there to be value there as well.

Yes, that makes sense. Julian. And maybe now more from a corporate perspective and Michael is asking, is there a succession plan in place, but in brackets not that we want to lose Julian.

Well, that's very kind. Yes, as Christine said at the start, I've gone through my first 25 years as a manager as a trust, I took over management of it with hindsight, when I was very young. I may not have felt it at the time. But -- so I have no intention to retire at the moment. I think importantly, once the merger of BMO and Columbia Threadneedle has fully gone through, then I will be joining the U.K. team there, which is currently 12 strong. It's a very strong team, which has substantial funds under management. And so the bench strength will be increased. And it's up to the Board to determine whether they want to have a named successor. I personally think there's much greater strength in having a wider pool of people to choose from as and when that happens to whether it's because I fall under a bus or want to retire. There will be a larger pool of people to take the reins in future.

Yes, I think that's fair to say. And that's the end of the question that we've seen come through. Obviously, we're always happy to answer any more and we have, I think, a contact details that were issued in the RNS. So if there are further questions, you can contact us that way or potentially through this platform. I'll hand back to Alessandro for that.

Yes, Christine, Julian, I think you managed to address all those questions from investors. And of course, the company will review all the questions submitted today and we'll publish those responses on the Investor [ e-company ] platform. But just before redirecting investors provide you with their feedback, which I know is particularly important to the company, Julian, could I just ask you for a few closing comments.

Yes, of course. Thank you. Thank you very much, investors for joining us today for spending your time. Hopefully, you've found that run through of the company and our thoughts about the outlook to be useful. I hope that I've shown you that we have a sensible carefully thought out portfolio of stocks -- of high-quality stocks, which we believe, despite the undoubted difficulties that there are in the economy at the moment, that they should be able to provide good returns and growth over time. We think that will manifest itself through dividend growth, and we very much strive to extend our record of AIC dividend hero. And through capital growth over time, we think there are definitely some encouraging signs from the stock market of that value in the portfolio being evident and we very much hope that over the medium and long term, that, that value will come through for investors.

Julian, that's great. And thanks again for updating investors today. Can I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This only take a few moments to complete I'm sure will be greatly valued by the company. On behalf of the management team of BMO Capital and Income Investment Trust PLC, we'd like to thank you for attending today's presentation, and good morning to you all.