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.
We live in an age of instant gratification. With the notion that ‘good things come to those who wait’ seemingly redundant, we’re happy to indulge in short-term delights without always thinking about the long-term consequences. But should you be quite so willing to gratify your senses when it comes to investing?
For the managers of the Monks Investment Trust, what happens in the short term means very little. Instead, they focus on what they consider businesses’ most important credentials - how they substantially grow their earnings over multiple years (and decades) by embracing wide-ranging structural change.
Monks aims for long-term growth, which it unashamedly prioritises over income, by investing in a globally diversified portfolio.
Founded in 1929, the £2bn investment trust is managed by Baillie Gifford, also known for their stewardship of the Scottish Mortgage closed-ended fund. Fund manager Charles Plowden, who has run the trust since 2015, is assisted by co-managers Spencer Adair and Malcom MacColl.
Growth through diversification
Part and parcel of their long-term horizon is accepting that individual assets may go through troughs before hitting their peaks - as such, a key aspect of the managers’ approach is mitigating individual losses through diversification. A large portfolio allocated across a range of sectors and geographies ensures that the trust is not overly affected by the performance of any one particular holding.
A glance through the company’s factsheet gives you a sense of this diversification. It holds anywhere from 70-200 stocks (currently around 120), with the top 10 holdings only comprising around 25% of total assets and a long tail of smaller positions spreading the trust’s reach across the globe.
Pay closer attention to those stocks, and you’ll find a similarly diversified approach to the kind of companies the managers are investing in.
A key bedrock of the company’s performance is ‘stalwart growers’ - the unglamorous, hard workers that produce reliable, long-term growth. Here we find companies like AIA, a life insurance company that recently celebrated its 100th anniversary, and Mastercard, the financial services company which processes countless payments worldwide.
Turn next to the fund’s biggest positions like Amazon, its largest holding, and Alphabet, the parent company of Google, and you find ‘rapid growers’ whose rise has been propelled by societal change. 30 years ago, in a world without the internet and home-delivery, the success of companies like these was literally inconceivable - now, a world without them seems just as alien.
The fund is ideally served to pursue these long-term ventures by its investment trust structure. As closed-ended vehicles, trust managers have a constant pool of capital to draw upon which means they need not abandon the fund’s long-term outlook in order to match immediate investor outflows.
The trust also makes use of a process known as ‘gearing’, where it can borrow money in order to buy investments. Gearing can magnify a trust’s gains if it is performing well, but at the same time risks amplifying losses if it underperforms.
These managers look for change - whether in a company’s strategy, industry structure, or wider societal shift - as catalysts for growth. They feel companies which can harness these opportunities position themselves as the growth drivers of the future. Whereas many of us are content to snatch at satisfaction today, Plowden and co are looking for the winners of tomorrow.
More on Monks Investment Trust
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. 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 an authorised financial adviser.
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