Highly-rated growth fund manager Baillie Gifford continued its strong returns run as the Monks Investment Trust (MNKS) significantly outperformed its benchmark in the half-year to 31 October 2020.

Monks reported net asset value (NAV) growth of 26.8% during the six months, helping to power the share price 25.7% higher. This represented another knock-out performance versus its FTSE World Index benchmark, which rose 10.2%.

JUDGE ON FIVE YEARS, NOT SIX MONTHS

But investors were advised against drawing hard and fast conclusions from the above figures, with its trio of Baillie Gifford fund managers urging investors to put the ‘very short time period’ into context.

Monks, like all Baillie Gifford-managed funds, invests for the longer-term, and generally advises investors to judge its success, or failure, over five year periods.

On that measure there can be no doubt. Since taking over the running of Monks on 27 March 2015,  the trust has put up truly impressive numbers, with returns of 131.7% on NAV and total share price of 170.8% to the 31 October period end.

That compares to a benchmark return of 70.9%.

Over the five years to date, Monks total share price has increased 206.3% (NAV 166.6%) versus the benchmark’s 94.2%, according to Trustnet data.

That sort of growth has earned the trust a big investor fan base, but they largely appear to be taking heed of the long-run judgement advice, hence today's modest 1% share price rise to £12.80, although that is just a fraction off the trusts’ £12.88 all-time high.

That puts the stock at a 3.3% premium to NAV, versus an average 0.6% discount.

PORTFOLIO CHANGES

The trust has made a ‘meaningful’ investment in new frontiers of the internet’, including online furniture group Wayfair and music streaming platform Tencent Music Entertainment, a joint venture between Chinese social media platform Tencent and Spotify.

In addition, Monks has made investments in a handful of enterprise cloud businesses whose services require no on-premise hardware and have significant growth opportunities.

Monks has made investments in BHP Biliton (BHP) and Rio Tinto (RIO) to add diversity of growth drivers to the existing portfolio.  The manager sees supply-side constraints coupled with the likelihood of a ‘moderate’ pick-up in demand from emerging market infrastructure spending as an attractive long-term growth opportunity.

BACKING COVID CASUALTIES

Lastly the trust has invested in a handful of companies where the near-term demand appears bleak, but longer-term growth looks assured.

New holdings include online travel agency Booking Holdings and car sharing company Lyft, where the manager sees growth potential in the transportation-as-a-service market.

The trust has twice added to its holding in budget airline Ryanair (RYA) believing the company will take market share as other operators retrench.

New positions were added in sports apparel company Adidas and cosmetics firm Estee Lauder, both brands which the manager believes will endure the current challenges to emerge stronger.

Research group Stifel commented, ‘unlike Scottish Mortgage, which is also managed by Baillie Gifford, the Monks team take a broader and more diversified approach with over 100 stocks and the largest 10 holdings only account for c.21% of the portfolio. We think this portfolio provides a more balanced, global portfolio.

VALUATION DISCIPLINE

The manager said its valuation discipline resulted in sales of digital payments group Visa and Tex-Mex fast food group Chipolte which ‘excelled’ in turning around its fortunes but where the manager believes future growth is ‘fully reflected in the price.’

The strong performance during the period and a reduction in short-term borrowing reduced gearing to 3.2% from 6.5%. No interim dividend will be paid. A final dividend will typically be paid after the annual general meeting.

READ MORE ABOUT MONKS HERE

Find out how to deal online from £1.50 in a SIPP, ISA or Dealing account.

Issue Date: 01 Dec 2020