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Lead Investment Analyst Kate Marshall shares our analysis on the manager, process, culture, ESG integration, cost and performance of Monks Investment Trust.
This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.
8 September 2022
Monks Investment Trust aims to deliver long-term growth by investing in companies at various stages of growth. The managers invest anywhere in the world including higher-risk emerging markets, but they tend to invest more in developed regions like the US and Europe. The trust could be a building block for an adventurous investment portfolio or work well alongside other investments in unloved ‘value’ companies with recovery potential.
Investors in closed-ended funds should be aware the trust can trade at a discount or premium to the net asset value (NAV).
Spencer Adair took over as lead manager in May 2021 following the retirement of veteran manager Charles Plowden. Adair worked closely with Plowden having been deputy manager since 2015 and involved with the Global Alpha team since launch in 2005. Adair joined Baillie Gifford as a graduate in 2000 and became a partner in 2013. During his career he has worked across a variety of different teams including Japan, Europe and the UK.
Malcolm MacColl has been deputy manager since 2015 and worked with Adair for over 15 years. MacColl also joined as a graduate in 1999 and has been mostly focused on North American companies. Following Plowden’s retirement, MacColl was named joint senior partner at Baillie Gifford.
The managers are part of the Global Alpha team which includes fellow partner Helen Xiong and three analysts, one of whom is solely dedicated to Environmental, Social and Governance (ESG) analysis.
The managers also use a team of ‘scouts’ who are dedicated analysts, with at least 10 years’ experience, looking for investment ideas for the trust. These ideas are then discussed amongst the managers and key analysts. The managers also benefit from the wider resource available at Baillie Gifford which consists of over 100 investment professionals.
The managers invest in companies that fall into one of three growth categories – ‘stalwarts’ that are already dominant in their industry and should keep steadily growing, ‘rapid’ often early-stage and innovative companies with big potential, and ‘cyclical’ companies whose growth tends to be tied more to the strength of the economy. They invest both in large companies and higher-risk smaller companies.
A fourth category – ‘latent’ growth – also used to form part of the trust. These businesses tended to be more out-of-favour with recovery potential. After in-depth analysis of the trust and its four categories, the team found the latent growth portion had tended not to contribute as much to performance. As a result, they’ve decided to focus on the remaining three categories, which now each make up a greater portion of the trust.
The managers have recently sold some of the rapid growth companies from the trust. This portion previously performed strongly, meaning it made up an increasingly large part of the trust. To help maintain some balance, the managers sold companies including South African internet company Naspers and online real estate company Zillow. They also sold some companies they felt no longer had a clear path to profitability, as well as some Chinese companies including internet business Tencent.
New investments in the stalwarts category include Japanese cosmetics business Shiseido and computer software company Adobe Systems. In cyclical growth, Royalty Pharma, which provides capital to biotechnology companies in exchange for royalties from their products, has been added.
As a global trust, the managers can invest anywhere in the world, but they currently find the most opportunities in North America with 54.9% of the trust invested there. The other half is spread across developed markets in Europe, the UK and Asia and higher-risk emerging markets such as China. In terms of sectors, the managers invest most in technology, financials, consumer discretionary and healthcare.
The managers also invest in higher-risk unlisted (private) companies that aren’t listed on a stock exchange. The majority is through the Schiehallion Fund, an investment trust managed by Baillie Gifford that invests in later-stage private companies, which currently makes up 3.3% of the trust. The managers won’t invest more than 10% of the trust in unlisted companies.
The managers use gearing (borrowing to invest), which can boost gains but also increases losses, so is a higher-risk approach. They can invest in derivatives too which, if used, also adds risk.
Monks Investment Trust was established in 1929 and is part of the FTSE 250 index. The trust is managed by Baillie Gifford, an independent private partnership founded in 1908. It’s owned by its partners, who work full time at the firm. This ownership structure means senior managers have a vested interest in the company, and its funds and investment trusts, performing well. Deputy manager MacColl is a partner at the firm. We think this has helped cultivate a culture with a long-term focus, where investors’ interests are at the centre of decision making. We also like that fund managers are incentivised in a way that aligns their interests with those of long-term investors.
While most of the ideas added to Monks Investment Trust are sourced from senior analysts, Adair also encourages more junior analysts to present ideas. This could encourage an open and collaborative culture.
All of Baillie Gifford’s funds are run with a long-term investment horizon in mind – they see themselves as long-term owners of a business, not short-term renters. So, assessing whether society will support, or at the very least, tolerate, the business model over the long term, and whether management will act as good stewards of shareholders’ capital is an important part of the investment process. All fund managers have access to a dedicated Governance and Sustainability team that is responsible for developing and coordinating the firm’s ESG research. Investment in controversial weapons is prohibited across the firm.
Adair describes himself as a ‘sustainable capitalist’. While this is not an ESG trust, he recognises that ESG considerations are important for long-term, sustainable businesses, and this means a focus on culture, governance, and environmental impact is needed.
The ongoing annual charge over the trust’s financial year to 30 April 2022 was 0.40%. Investors should refer to the latest annual reports and accounts, and Key Information Document for details of the risks and charging structure. If held in a SIPP or ISA, the HL platform charge of 0.45% per annum (capped at £200 per annum for a SIPP and £45 for an ISA) also applies. The platform charge doesn’t apply if the trust is held in a Fund and Share Account.
Monks Investment Trust has delivered good returns since the Global Alpha Team took over in 2015. Over this period the trust’s share price has grown 146.74%* compared with 124.69% for the FTSE World Index. Adair and MacColl were deputy managers during this time, and directly involved in the investment decision making process, so we think it’s fair to attribute this track record to both them and previous manager Charles Plowden. Past performance is not a guide to the future though and investments fall as well as rise in value so you could get back less than you invest.
The past year has been much tougher for the trust, with the share price falling 28.46% compared with a small gain of 0.50% for the FTSE World Index. While the managers’ growth-focused investment style has previously led to strong returns, the trust has struggled and fallen in value over the past year. Higher inflation and rising interest rates have put pressure on growth investing, as this erodes the value of cashflows expected to be generated further out in the future.
On the other hand, value-focused trusts, which invest in lowly-valued or recovering businesses, have performed better. Some economically sensitive areas of the market, such as oil & gas and commodity related businesses, which the trust tends to avoid, have also been strong.
While investment style has played an important part in the trust’s performance, Adair recognises there have been some individual stock-specific issues too. For example, exercise equipment company Peloton performed poorly after initially benefiting from Covid-induced lockdowns and an increase in people working out from home. The stock has since been sold. Investments in China have also hampered returns, though exposure has been reduced.
The trust has long-term performance potential, but periods of volatility should be expected. As always, we suggest investors build diversified portfolios with exposure to a variety of investment styles, sectors, countries, and asset classes. Plus, you should regularly review your investments to make sure they continue to meet your needs and objectives.
Past performance is not a guide to the future. Source: *Lipper IM to 31/08/2022.
Find out more about Monks Investment Trust, including charges
Monks Investment Trust Key Information Document
This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.
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