Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest.
THE significant increase in interest rates has undermined many parts of the market, with one of the areas worst affected being growth stocks. A key proponent of these strategies is Baillie Gifford, whose funds have de-rated sharply, but whose record suggests that they could still deliver superior long-term returns.
Investors who want to take advantage of the recent weakness may wish to consider the Monks Investment Trust, which offers a diversified exposure to Baillie Gifford’s best global growth ideas. It has just published its annual accounts to the end of April, with the managers announcing a number of pragmatic changes to reflect the higher interest rate environment.
The portfolio consists of three different categories of growth stocks that give a diversity of return drivers and reflect the broad investment approach. They are: growth stalwarts, cyclical growth and rapid growth, with each accounting for about a third of the assets.1
Monks Investment Trust 5-year price performance chart
Source: Yahoo Finance from 25.7.18 to 25.7.23 Basis: Share price in GBP. Excludes initial charge.
Past performance is not a reliable indicator of future returns
Monks’ recent performance has been disappointing and the manager acknowledges that mistakes have been made, but they have responded by taking decisive action to reposition the fund. The most notable aspect of this was the reduction of the rapid growth allocation from a peak of around 55%.2
Institutional Stockbroker, Numis says that it is healthy for the managers to overhaul the portfolio for a different environment where it is considered appropriate. Investors can take further confidence from the team’s pragmatic approach of looking across geographies and sectors to find underappreciated growth, rather than just sticking to the fastest growing stocks in the new economy.3
The manager expects the portfolio to deliver attractive long-term returns and highlights that the forecast three-year earnings growth is twice that of the market, with strong balance sheets and low debt-to-equity ratios. It is also worth noting that the unlisted stocks only account for 4.4% of the assets, which is much lower than in many of Baillie Gifford’s other funds.4
Following the recent disappointing performance the trust has slipped to a discount to NAV of 13%. This could represent a decent long-term opportunity, especially as the board is actively buying back the shares to limit any further widening.
The broker Investec, which has a buy recommendation on the fund, likes the pragmatic and differentiated approach to growth, with the manager able to look across the growth spectrum. They believe that this flexibility will be a critical success factor in delivering superior long-term returns.5
More on the Monks Investment Trust
Five-year performance table
|
(%) As at 31 July |
2018-2019 | 2019-2020 | 2020-2021 | 2021-2022 | 2022-2023 |
|---|---|---|---|---|---|
|
Monks Investment Trust |
12.4 | 13.9 | 27.8 | -26.3 | -1.4 |
Past performance is not a reliable indicator of future returns
Source: FE, as at 31.7.23 Basis: Total returns in GBP. Excludes initial charge.
Source:
1,2,4,5 Investec, 23.6.23
3 Numis, 20.6.23
Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. The shares in the Monks Investment Trust are listed on the London Stock Exchange and their price is affected by supply and demand. The investment trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
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