Since Citywire A-rated trio Plowden, Spencer Adair and Malcolm MacColl took over Monks in March 2015, its discount to NAV has narrowed from 14% to 0.6% today. Over the 12 months to May, the discount’s move from 9.5% contributed to Monks’ impressive 53.9% shareholder return. This compares to a 31% rise by the FTSE World Index and a 40% gain by Monks’ NAV over the same period.
‘We are pleased that this is the second successive year where the company has not needed to buy back shares and, in contrast, we are now approaching the position where we might potentially issue new shares at a premium to NAV in order to satisfy demand from buyers,’ noted the managers in Monks’ annual financial report.
The reduction in the trust’s discount can be attributed to improved performance under Baillie Gifford’s global alpha team. Since taking over the trust, which has a market cap of £1.5 billion, they sought to generate demand for Monks’ shares, whilst reducing the level of selling by existing shareholders. Plowden, Adair and MacColl have achieved success in this respect, but do not intend to rest on their laurels.
‘We are encouraged by progress so far but recognise that if we are to prevent the discount from widening out again, we shall have to continue to demonstrate ongoing potential for strong performance,’ the managers explained.
Over the period, seven companies in the portfolio returned more than 100% in sterling terms, while the share prices of 29 stocks rose by more than 50%. As the managers back global companies, they benefited from weakness in sterling which followed the Brexit vote.
‘It is interesting to note that despite very strong share price appreciation we made no sales of any of these holdings but rather added to Alibaba (BABA.K) and Naspers (NPNJ.F) during the year as we continue to believe such companies are capable of substantial further growth,’ the trio added.
Following a strong 12 months, the team expects returns will be lower in the immediate future. Nevertheless, they remain confident that companies in the portfolio can continue to successfully adapt to the changing environment to deliver superior growth.
‘We are less confident that aggregate stockmarket indices will make continued progress given the number of large companies and industries which look to us to be ripe for disruption and long-term decline,’ the managers said.
The team targets growth stocks that fall into four categories: durable franchises, early stage businesses with the potential to experience rapid growth, companies that are geared into economic growth, and those where the team have identified a catalyst for positive change.
Over the 12 months to May, the managers sold out of 20 positions, including American Express, building materials company Wolseley (WOS), eBay (EBAY.O), Ferrari (RACE.K) and equipment hire supplier Aggreko (AGK).
During the same period, seven companies were added. The team hopes that several of these will experience rapid growth on account of the innovative solutions they offer. They include unlisted start-up Grail, which has developed blood tests to detect cancer at an early stage.
Meanwhile, they hope to see positive change coming through from restructuring in new additions AP Moeller-Maersk (MAERSKb.CO), which is a Danish conglomerate, and Taiwanese consumer electronics company HTC (2498.TW).
Ready to change gear
Gearing, or borrowing, stood at 6.2% at the end of April. While the managers would like to raise borrowing to 10% of shareholders’ funds, they said the recent strength of equity markets had dissuaded them from doing so. Nevertheless, they ‘remain alert to opportunities’.
Tech giant Amazon (AMZN.O) remains the trust’s largest position, followed by financial services company Prudential (PRU) and cruise line operator Royal Caribbean Cruises (RCL.N).
The board has recommended that a single final dividend of 1.25p should be paid for the financial year. This is lower than 1.5p last year, reflecting the trust’s strong focus on generating capital growth. No interim dividend was paid during the year.