Has Monks Finally Turned The Corner?

It has been a challenging three years for the Monks investment trust (LON: MNKS),which has struggled ever since growth stocks fell out of favour. However, the latest annual accounts to the end of April suggest that it might have finally turned the corner with a total NAV return of 17.6%. This was only marginally behind the 19.1% increase in the FTSE World benchmark.

The Board has reaffirmed its confidence in the manager and said that Baillie Gifford (BG) is an impressive investment house, with excellent minds applied to finding the best way of profiting from the accelerating change in the global economy. It is also encouraged by the robustness of analysis of the portfolio that is designed to provide a “diversified distillation” of BG’s best ideas.

One of the most impressive aspects of the trust is the commitment to close the discount with a huge share buyback programme. This saw 7.2% of its opening share capital repurchased in the 2024 financial year, with a further two percent since the end of April, yet the shares are still way below their NAV.

The Portfolio

Baillie Gifford categorises its portfolio into three different sections: growth stalwarts, cyclical growth and rapid growth. Their core strategy has remained consistent over the years, although they have now opted for a more balanced allocation between the different segments after being overexposed to the latter when market sentiment changed.

At the end of May the top ten holdings accounted for 29.7% of the assets, which is much more diversified than its stablemate Scottish Mortgage (LON: SMT). These included well-known names such as Microsoft, Meta, Amazon and Moody’s.

The portfolio is driven by bottom-up stock selection and is intended to provide exposure to companies that can deliver superior earnings growth over the long-term. At the end of April it had better average gross margins and three-year forecast earnings growth than the benchmark, as well as a much lower net debt to equity ratio.

Outlook

The managers are positive about the outlook for their holdings, noting that they are successfully fine-tuning operations in the light of the current conditions, which has led to strong earnings growth and forecasts. They are particularly excited about the acceleration of technological development that they are looking to take advantage of given their “latitude to invest beyond the obvious.”

Since the team took over the management in March 2015, the NAV has risen by 172%, which is slightly behind the 187% gain by the FTSE World benchmark. The shares are currently trading at an 11% discount to NAV and although there is no formal discount policy, the company has been active in buying back shares.

The broker Investec regard Monks as a core strategic holding for investors looking for a well-managed, lower-risk and low-cost exposure to Baillie Gifford’s best global growth ideas. They have recently reissued their buy recommendation.