While fund managers tend to favour looking at their long-term performance, that does not mean they are deaf to complaints. A little over five years ago the Monks Investment Trust underwent a reshuffle with a change of manager (Greig Cameron writes).
Some analysts felt it had been positioned too defensively coming out of the global financial crisis and, as a result, performance had lagged behind its peers as well as its benchmark index.
Founded in 1929, the trust has been managed by Baillie Gifford, the privately owned fund management house based in Edinburgh, for most of its operation.
The shake-up in March 2015 resulted in Gerald Smith, the manager since 2006, and his team being eased aside so that Charles Plowden, another Baillie Gifford partner, could take over. There was a fairly swift reshaping of the portfolio in the following weeks.
The transition looks to have paid off for patient investors who decided to wait and see what happened. Five years ago the trust’s market capitalisation was in the region of £900 million, with the shares at about 415p. The trust now runs more than £2.3 billion of assets and its shares have been changing hands at record highs of more than £11 in recent weeks. The stock had gone as low as 647p in March this year as markets plunged but it has bounced back quickly.
In the five years from 2015 to 2020, Monks gave a net asset value total return of 82.7 per cent, compared with 55.1 per cent for the FTSE World Index. The focus is on capital growth but Monks commits to paying a minimum level of dividend. That was 2.5p in the most recent financial year to the end of April, compared with 1.85p in the previous 12 months.
The portfolio has a spread of different kinds of technology — Amazon, Microsoft, the Google parent Alphabet and Alibaba, the Chinese e-commerce group, are among its largest holdings.
There is a growing presence for innovative healthcare, with stakes in the gene sequencer Illumina, the miniature heart pump maker Abiomed and Denali Therapeutics, which works to treat neurodegenerative diseases.
It has also built positions in Teladoc and Ping An Good Doctor, which provide telemedicine services in the US and China respectively.
While Baillie Gifford preaches long-term investment, typically between 10 per cent and 15 per cent of the Monks portfolio, usually more than 100 companies, moves in or out each year.
Other new purchases in the financial year included Ubisoft Entertainment, the computer game producer, Appian, a cloud computing specialist, and Farfetch, the luxury online fashion retailer.
The managers have also been steadily trimming companies that are more exposed to economic cycles, having sold Fiat Chrysler Automobiles and Royal Caribbean Cruises. Other exits in the year included the oil group Apache, the Japanese recruiter Persol Holdings and Signify, a maker of digitally connected lighting systems.
Managers reduced their holdings in Tesla, the electric car marker, Visa, the payments group, and Schindler, the lift manufacturer, as they felt their valuations were peaking.
Mr Plowden said in May that he planned to retire and would leave next April. Spencer Adair, one of the deputy managers, will take over, and any wild divergence in strategy is unlikely. For those who have stayed with Monks over the past five years, more of the same will be welcome.
Advice Hold
Why Strong record of capital growth, an experienced team and a small dividend. Well set to ride out any Covid-related bumps in the global economy
Standard Chartered
This British multinational banking and financial services company has avoided much of the anger directed at HSBC as part of the spat between China, pro-democracy Hongkongers and the US over the future of the territory (Katherine Griffiths writes).
But clearly both banks have been hit hard by the turmoil raging in a place where they derive most of their profits. That is reflected in their share prices, with HSBC — traditionally one of the most defensively positioned stocks in the FTSE 100 — trading at about 0.7 times its book value. Standard Chartered manages a miserable 0.5 times. Yet Standard Chartered could have some relatively good news on the horizon: interim results at the end of the month may be better than expected, and more encouraging than some of its peers.
However, the figures will be poor. Hong Kong looks set for a long recession, with coronavirus and the new Chinese security law heaping pain on top of the damage to business from last year’s protests.
But, as Joseph Dickerson from Jefferies pointed out in recent research, Standard Chartered’s position is different from that of HSBC. While the latter is a big lender to commercial real estate in Hong Kong, one of the bleakest sectors during tough economic times, Standard Chartered is less exposed.
The possibility of a second wave of the virus is a serious threat and it is just breaking in some of Standard Chartered’s smaller markets in Africa, but its big centres are well through the worst of the first wave, potentially giving it more clarity about where its bad debts will end up. In comparison, some big banks about to report results, particularly in the US, are in places where the health crisis continues to rage.
That is not to say dividends will be back on Standard Chartered’s agenda soon. Like other large UK-listed banks, it gave up the 2020 payout in early April at the regulator’s behest. Signs now that it is weathering the bad debts storm would be good news for shareholders, as that money will be there for a 2021 payout.
Standard Chartered has had a dismal few years in terms of share price. There is reason to believe that trend may be about to change.
Advice Buy
Why Further along bad debt curve from Covid than peers
