Analysts keep faith in Monks’ long-awaited recovery 

Despite clocking five years of disappointing performance, analysts are keeping faith in Monks (MNKS ), arguing the global equity trust was ‘unlucky’ with the timing of its annual results.

The £2.4bn Baillie Gifford-run investment company was tantalisingly close to recovery in its financial year to the end of April, but gains were snatched from the grasp of fund managers Spencer Adair, Malcolm MacColl and Helen Xiong in the final two months of the year. US president Donald Trump’s ‘Liberation Day’ tariffs wiped out gains made by the global equity trust during the previous 10 months.

Monks grew its net asset value (NAV) by 0.1% over the year to the end of April, which compares to a 5.3% rise by the FTSE World index.

JPMorgan Cazenove analyst Chris Brown – who has maintained an ‘overweight’ recommendation for Monks – said the managers had been ‘unlucky’ with the timing of their results, given the bounce back following the ‘Liberation Day’ shocks.

On a five-year rolling basis, he noted the trust is 25% behind the index and 8% behind its peers in NAV total return terms.

Despite falling short on gains, Brown favours Monks over Scottish Mortgage (SMT ) because he views it as ‘a better diversified and less high octane proposition without the uncertainty of the large holding of unquoteds’.

Investec analyst Alan Brierley also describes Monks as a ‘well-managed, lower-risk and low-cost exposure to Baillie Gifford’s best global growth ideas’.

Monks has been a long-standing ‘buy’ recommendation for Brierley, who said it was ‘wrong-footed and over-exposed to rapid growth when the growth tailwinds brutally reversed in 2021’.

Although performance has stabilised since then, it is yet to embark on a sustained recovery. This may reflect why the trust continues to trade at a discount that is close to 10%. 

However, Brierley believes there is ‘ground for optimism’, pointing to the portfolio’s three-year earnings growth which is at a 45% premium to the market. He also noted that the forward price-to-earnings premium has collapsed over the past three years from 31% to just 7%.

‘We believe the portfolio is well-placed for any improvement in market breadth from these historically narrow levels,’ said Brierley.

The managers continue to be held to account by a tough board, which has pulled no punches on the disappointing performance figures, promising to scrutinise stock-specific errors that were made over the past financial years.

The board also outlined plans to expand what is already one of the most active buyback programmes in the investment company industry. Their intention is to narrow the discount to mid-single digits in normal market conditions.

‘We applaud this bold statement of intent,’ said Brierley.

The recent performance may have been disappointing but Brierley is convinced that ‘foundations have been strengthened, and the portfolio is in good health’.

‘The clear challenge for the manager is to now reinvigorate the track record,’ he said.

Consolidation hopes dashed

One challenge that Monks may not be able to overcome just yet is fulfilling its dream to become a consolidator.

Karl Sternberg, Monks’ chair who is planning to retire soon, has set out plans for the trust to become a consolidator in the global equity sector. However, Brown said the trust’s recent poor run of performance will make this challenging. 

He said Alliance Witan (ALW ) and JPMorgan Global Growth & Income (JGGI ), which already have experience with large trust mergers, are both ‘more credible consolidators for global trusts’.

‘In recent years Monks has been the rollover vehicle for Independent Investment Trust, but there was a strong link to Baillie Gifford with Independent’s former manager Max Ward having had a long career at Baillie Gifford prior to managing Independent,’ he added.