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Monks Investment Trust: August 2020 update

Investment Analyst Jonathon Curtis shares our analysis on the managers, process, culture, cost and performance of Monks Investment Trust.

Important notes

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.

  • Investments in technology and healthcare have done well and been increased
  • The trust’s performance since the managers took over in 2015 has been strong
  • Charles Plowden has announced he will retire next year, with Spencer Adair set to take over from him as lead manager

How it fits in a portfolio

Monks Investment Trust aims to deliver long-term growth by investing in companies at various stages of growth. As a highly diversified trust it could be a useful building block for an adventurous portfolio. With investments in companies from across the globe, it could also help portfolios seeking to increase their exposure to foreign markets. Investors in closed-ended funds should be aware the trust can trade at a discount or premium to the net asset value.

Manager

The trust is currently managed by Charles Plowden, Spencer Adair and Malcolm MacColl. The trio are part of Baillie Gifford’s Global Alpha team and took over the trust around five years ago.

Plowden is the current lead manager. He joined Baillie Gifford in 1983 and became a partner in 1988. He was a portfolio manager of the UK Equity Team for over 20 years and latterly became head of the team. Adair joined the firm in 2000 and became a partner in 2013. He’s worked in many sectors at the company, including Japan, Europe, UK and fixed income. MacColl has been with Baillie Gifford since 1999, becoming a partner in 2011. He previously worked within the UK Small Cap and North American teams.

Plowden recently announced he will retire in April 2021 and so will no longer be involved with the trust from then. Adair will step up to become the lead manager and MacColl will continue as deputy manager.

Process

The managers invest in companies that fall into one of four growth categories – ‘stalwarts’ that are already dominant in their industry and can keep steadily growing; ‘rapid’ often early-stage and innovative companies with big potential; ‘cyclical’ companies whose growth tends to be tied to the strength of the economy; and ‘latent’, which can be out-of-favour but have recovery potential. Their investments are in both large companies and higher-risk smaller companies too.

As a global trust, the managers can invest anywhere in the world. They’re currently finding the most opportunities in North America, so around half the portfolio is invested there. The other half is invested in companies from both developed markets such as Japan and the UK, and higher-risk emerging markets such as China and India.

They’ve recently invested more in the healthcare sector, with either new or increased investments in gene sequencing company Illumina, miniature heart pump maker Abiomed and Denali Therapeutics, which develops neurodegenerative disease treatments.

Several investments in ‘cyclical’ companies have been sold recently. These include cruise ship operator Royal Caribbean, car manufacturer Fiat Chrysler and several banks. They’ve reinvested the proceeds in areas they think have better long-term growth prospects, such as video gaming.

Some profits have also been taken by trimming some positions that’ve done well, such as electric vehicle maker Tesla and Chinese ecommerce giant Alibaba.

The managers can use gearing (borrowing to invest), which could help boost gains but increases losses so it’s a higher-risk approach. They can also use derivatives to help them invest, which increases risk too. Investors should refer to the latest annual reports and accounts and Key Investor Information for details of the risks and charging structure.

Culture

Baillie Gifford was founded in 1908 and has become well-known for its investing-for-growth philosophy. The firm is an independent private partnership, allowing its managers to remain focused on long-term investing without short-term shareholder distractions. When they invest in companies, they actively engage with management teams and encourage them to think about the long term too. Baillie Gifford also makes extensive use of academic research, and has consultancy agreements with universities and institutes both in the UK and around the world.

Cost

The trust’s current ongoing annual charge is 0.48%, which we think is good value for access to experienced managers with a sensible approach. The charge has been coming down over the years as the trust has grown, which we think is the right thing to do. If held in a SIPP or ISA the HL platform fee of 0.45% per annum (capped at £200 per annum for a SIPP and £45 for an ISA) also applies. Our platform fee doesn’t apply if held in a Fund and Share Account.

Performance

During the trust’s financial year to 30 April 2020 its net asset value (NAV) rose 3.4%, outperforming the FTSE World index’s -1.0% return. Past performance is not a guide to future returns. Healthcare companies such as Seattle Genetics, Olympus and Alnylam Pharmaceuticals, did well in what was an extremely volatile period. A recent investment in Teladoc, the largest provider of telemedicine consultations in the US, has done particularly well during the pandemic. The surge in ecommerce during worldwide lockdowns has also greatly benefitted ecommerce darlings Amazon and Shopify.

The biggest detractor from recent performance was Prudential, as investors became worried about the company’s fixed income investments. The managers have held Prudential since they took over the trust, and have stayed invested as they think it has lots of long-term growth potential in Asia. Investments in oil and gas companies, banks and travel-related businesses also did poorly, although the trust didn’t have much invested in these areas.

Since the managers took over the trust in March 2015 they’ve delivered returns of 158.3%* compared with the FTSE World’s 68.7% return. Remember past performance isn’t a guide to future returns. Some of the portfolio’s biggest contributors over that time include online giants such as Amazon, Alibaba and Alphabet (Google’s parent company).

Monks Investment Trust performance under the managers

Past performance is not a guide to the future. Source: *Lipper IM to 31/07/2020.

Annual percentage growth
July 15 -
July 16
July 16 -
July 17
July 17 -
July 18
July 18 -
July 19
July 19 -
July 20
Monks Investment Trust 15.2% 46.7% 21.8% 12.4% 13.6%
FTSE World 18.0% 18.2% 12.4% 11.0% 0.2%

Past performance is not a guide to the future. Source: Lipper IM to 31/07/2020.

Find out more about Monks Investment Trust including charges

Monks Investment Trust Key investor information


Important notes

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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