Monks Investment Trust reports solid first half amid global market rally

(Sharecast News) - Monks Investment Trust reported a solid first half on Thursday as global equity markets hit record levels, delivering a near-30% return and narrowing its discount as it stepped up share buybacks. For the six months ended 31 October, the trust's net asset value total return rose 29.2%, ahead of the FTSE World index in sterling, which returned 24.2%.

Its share price total return was 35.2% as the discount to NAV, with debt at fair value, tightened from 10.1% to 5.9%.

Over the year to October, the NAV and share price returned 21.5% and 29.1% respectively, against a 21.0% index gain, while over the past decade the NAV was up 264.8% and the share price 290.7%, compared with 273.0% from the benchmark.

The board increased capital returns during the period, buying back about 19.1 million shares at a cost of £268m, in line with its stated aim of keeping the discount in mid-single digits in normal market conditions.

Shareholders' funds rose to £2.7bn from £2.32bn on 30 April, with shareholders' funds per share increasing to 1,601.8p from 1,235.9p.

On a debt-at-fair-value basis, NAV per share stood at 1,634.5p versus 1,265.2p at the prior year-end.

Net gearing was 7% at the period end, with a weighted average interest rate on borrowings of 3.4%.

Baillie Gifford's managers said the period was "record breaking" as global equity indices and Monks' own NAV and share price reached all-time highs, supported by resilient earnings and investor enthusiasm around artificial intelligence.

They highlighted AeroVironment, Taiwan Semiconductor Manufacturing and Prosus among the largest positive stock contributors, with AeroVironment benefiting from "record 140% year-on-year revenue growth" following its BlueHalo acquisition and TSMC supported by "insatiable AI demand" and over 60% global market share in leading-edge semiconductor fabrication.

Detractors included Elevance Health, where Medicaid cost pressure hit earnings, and the trust's underweight or zero positions in AI-driven favourites such as Alphabet, Broadcom and Tesla, which the managers described as "deliberate choices" reflecting more attractive opportunities elsewhere in the portfolio.

The managers reiterated their focus on a diversified growth portfolio, split between "Stalwarts", "Rapid" and "Cyclical" growth profiles, and said around a third of capital was now exposed to the AI value chain across both enablers and monetisers.

They pointed to holdings such as TSMC, Nvidia, Disco and Kokusai Electric on the supply side, alongside large US platforms and software names including Salesforce and Shopify, and newer positions such as AppLovin and Coinbase as potential long-term beneficiaries of AI and digital adoption.

The portfolio remained heavily weighted to North America, at 61.8% of total assets, with emerging markets accounting for 15.3% and continental Europe 13.0%, with a 39.5% allocation to technology.

Monks said it had also been reshaping its healthcare exposure, which lagged in recent years, reducing direct clinical risk and increasing positions in service and "picks and shovels" names such as Medpace and the Ensign Group, while exiting Genmab over concerns about concentration risk and execution around its shift to in-house commercialisation.

The managers said the portfolio's companies generally exhibit lower leverage, higher free cash flow margins and stronger returns on capital than the wider market, with aggregate forecast three-year revenue and earnings growth of 8.4% and 13.7% per annum respectively, compared with 4.9% and 10.5% for the FTSE World index.

On governance and succession, chairman Randeep Grewal confirmed that Monks' long-standing manager, Spencer Adair, would retire on 31 March.

The trust said it would continue to be run by Baillie Gifford's Global Alpha team, with current managers Malcolm MacColl and Helen Xiong to be joined by Michael Taylor as co-manager from 1 April.

Grewal said the board had carried out a "deep dive" review of the manager and was "pleased with the response of our managers and their thoughtful engagement and eagerness to refine their process for the benefit of our shareholders."

He added that "Monks has a well-diversified portfolio of growth stocks.

"The board believes that the company's diversified approach offers investors exposure to a wide range of growth opportunities that are likely to drive returns in the years ahead."

At 1047 GMT, shares in the Monks Investment Trust were down 0.13% at 1,436.07p.

Reporting by Josh White for Sharecast.com.