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Investment Trust Insider: Mo' Monks, Mo' problems
by James Carthew on Nov 06, 2012 at 00:01
The worst-performing generalist in net asset value over the past year also happens to be the one I have most money invested in: Monks.
It is not that it has been a complete disaster, just that it has barely moved in a year, while the average generalist is up by 10%. To compound the problem, its discount has widened by about 7% over this time.
Monks has been managed by Gerald Smith since May 2006. In April 2011, he became chief investment officer at Baillie Gifford. Monks’ benchmark is the FTSE World Index. It holds a mix of equities and bonds but the bond portfolio has been reduced over the past year.
In keeping with the Baillie Gifford house style, the investment approach is based on long-term stock selection, and this determines the asset allocation.
The portfolio is more diversified than many of its stable mates, notably Scottish Mortgage and Edinburgh Worldwide , with 133 holdings and the top 10 accounting for 21% of the fund. In a period where investors have sought out defensive stocks and yield plays, Monks’ focus on investing for growth has been out of favour.
Baillie Gifford is cautious on markets for the reasons you would expect. In particular it does not think politicians have the guts to tackle eurozone, UK and US government debt.
The European weighting is low. It thinks many banks are still undercapitalised, a view recently echoed by Bank of England governor Mervyn King, and Monks is underweight financials.
The manager still believes in the long-term bull case for emerging markets, and this is reflected in the portfolio. He sees the situation in China as a cyclical rather than a structural slowdown but has lower exposure to Asia than many funds in the peer group.
The biggest investment, 3.1% of the portfolio, is in IP Group, a fund that invests in early-stage technology as joint ventures with a number of UK universities.
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