A ruthless “portfolio weeding” exercise could not prevent a set of disappointing half-year results for Baillie Gifford’s Monks Investment Trust.
Despite ditching 20 holdings over the last year, the trust still underperformed its benchmark, the FSTE World in sterling, across the six months, posting an NAV total return of -5.2% to the benchmark’s -0.3%. A share price total return of -7.6% across the six months also reflected the difficult market conditions.
Chinese equities, industries that are vulnerable to inflationary pressures, and those that are exposed to a tapering demand describe most of the companies that the trust divested.
Victims of this cull were Peloton and Carvana, an online used car retailer, while the trust’s exposure to Chinese companies was down from 4.1% of the portfolio on 30 April, to 2.9% on 31 October.
The trust sold out of its stakes in Brilliance China Automotive, online property company KE Holdings, and Tencent. The report admitted that the prevailing regulatory environment for private enterprise in China was a concern.
It also ditched its holding in Naspers, a South African investment company, due to its significant investment in Tencent.
Adobe and semiconductor producer Analogue Services were two of the nine holdings that it added in the same period, including the opening of stakes in cosmetics company Shiseido and Eaton, an electrical power management firm, in the last six months.
According to its October factsheet, the yearly numbers are less flattering still, as share price and NAV have fallen by 29.8% and 28.2%, respectively, compared to a -2.8% return for its benchmark.
Assets totalled £2.4bn on 31 October, down from £2.7bn at the start of the period, while share price sat at £9.69, falling from £10.51 on 30 April.
NAV per share was £10.40, leaving the trust trading at a discount of 6.9%.
Between the end of October and 6 December, the discount has widened to 8.1%, with shares climbing slightly to £9.76.
In its opening gambit, the report said: “The performance of the Monks portfolio over the past six months has been disappointing. The backdrop of an ongoing war in Europe between Russia and Ukraine, rising inflation, and aggressive central bank rate rises have done little to ease investor nervousness.”
It added that the sort of “structurally expanding businesses” that Monks invests in, particularly those where profits lie a few years out, remain out of favour.
Boldly, the report said that revenue and earnings are forecast to grow twice as fast as the market average over the next year, adding that this conviction strengthens over longer periods: “We are confident that we own a collection of companies that should be well-placed to navigate a period of rising costs and potentially weaker demand.”
Since the results, Monks has received £100m in equity investment holdings, and £73m in cash, following the voluntary liquidation of the Independent Investment Trust. It was agreed that the funds would merge after the latter’s manager, Max Ward, announced his plans to retire.