Complete your registration today for a chance to win £50 John Lewis vouchers in our weekly draw Enter now
Baillie Gifford
Updated 11 Nov 2022
Save Article

Disclaimer

This is a non-independent marketing communication commissioned by Baillie Gifford. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

The value of your investment and any income from it can go down as well as up and as a result your capital may be at risk.

Monks knows a thing or two about volatility. Founded in 1929, the Trust was only months old when the Wall Street Crash brought the Roaring Twenties to an end. The bank that launched the Trust went bust, leading to Baillie Gifford’s appointment as manager in 1931. Accepting the shifting fortunes of markets is in with the bricks at Monks.

Having been in the management hot seat since April 2021, I’ve gained some insight into the experiences of my earliest predecessors over the past few months. The flight from stocks seen as having long-term growth potential to those whose value lies in the moment has left Monks’ performance lagging.

Yet despite fallen markets, I see this period as a long-term opportunity rather than a signal that something has gone wrong with our way of investing.

At the heart of Monks’ patient approach to long-term capital growth lies our belief in diversity. We don’t rely on one definition of ‘growth’. Instead, we pick a combination of company types:

  • Stalwart – established, dependable companies that grow profits year after year
  • Rapid – innovative firms delivering rapid growth
  • Cyclical – businesses readying themselves for growth as the global economy recovers

This mix is diversified across different industries and parts of the world. And with valuations tumbling, we’ve been spoilt when it comes to finding new places to allocate capital. The following are some examples of companies we’ve recently invested in.

Adobe: more than just PDFs

Best known for software that turns files into PDFs, stalwart Adobe produces a range of programs for creating, managing and marketing documents, images and videos.

A publisher that signs up to use its InDesign desktop publishing software for a magazine might then graduate to Photoshop for handling images and Illustrator to create website graphics.

Rather than buying discrete software applications, customers subscribe to a suite of programs, bringing in the repeat revenues that make Adobe so good at compounding growth.

We’ve admired Adobe for a long time. The falling market over the past few months has made it much more attractive and given us the right entry point.

The ability to pick quality stalwarts at the right price is key to Monks’ long-term strategy. Once they’re locked in, we sit back and let the magic of compounding happen.

Nexans: from ‘picks and shovels’ to ‘wires and cables’

Founded in 1897, this sprawling French conglomerate once made cables for everyone from car producers to construction firms. Now it’s moving from being an industrial generalist to being a renewable power specialist.

Since taking over as chief executive in 2018, Christopher Guérin has been selling off the low-value, commoditised parts of the business to exploit the disruption potential of the great green energy transition. Under the slogan “Electrify the future”, the group aims to cover the whole electrification journey, from mining the copper to providing monitoring software for cables.

While there may be questions over the timeframe for the transition, the direction of travel is clear. The ‘picks and shovels’ stocks that enabled fossil fuel industries to grow are giving way to the ‘wires and cables’ investments that will harness renewable power.

We expect this 125-year-old business to mimic the rapid growth rate of a disruptive startup.

Royalty Pharma: funding biotech’s next generation

Good capital allocation is central to Royalty Pharma, one of Monks’ most recent purchases. Drug owners receive royalty payments from manufacturers that produce and sell their medicines.

You can think of it in two ways. It’s either the most profitable drugs company in the world, turning between 80 and 90 per cent of its turnover into profit because it doesn’t have expensive research and development assets, or it’s a specialist investment fund with a long-term outlook.

The company takes the capital it receives from its existing royalties and reallocates it to the most promising drug development projects. Those drugs hit the market, generating royalties themselves, and the cycle repeats.

Royalty Pharma is addressing a funding gap for biotech businesses. That gap is likely to widen as interest rates increase and traditional capital becomes harder to access. Its specialism gives it more credibility than standard investment banks.

What links all three companies together is change. This goes hand-in-hand with growth, but it also brings uncertainty.

That’s why such a big part of my role is sitting on my hands. In tough times, the priority is to keep scanning our five-to-ten-year horizons and not allow negativity to creep in.

Having a diversified and balanced portfolio allows Monks to manage the uncertainty that change brings. It’s that breadth of vision that allows us to navigate volatile periods and focus on the long term.

Annual Past Performance to 30 September Each Year (%)


2018 2019 2020 2021 2022
The Monks Investment Trust 19.1 7.8 24.9 23.8 -30.1

Source: Morningstar. Share price, total return, GBP
Past performance is not a guide to future returns

Spencer Adair
Manager, Monks Investment Trust

Investments with exposure to overseas securities can be affected by changing stock market conditions and currency exchange rates.

The views expressed in this article should not be considered as advice or a recommendation to buy, sell or hold a particular investment. The article contains information and opinion on investments that does not constitute independent investment research, and is therefore not subject to the protections afforded to independent research.

Some of the views expressed are not necessarily those of Baillie Gifford. Investment markets and conditions can change rapidly, therefore the views expressed should not be taken as statements of fact nor should reliance be placed on them when making investment decisions.

Baillie Gifford & Co Limited is wholly owned by Baillie Gifford & Co. Both companies are authorised and regulated by the Financial Conduct Authority and are based at: Calton Square, 1 Greenside Row, Edinburgh EH1 3AN.

The investment trusts managed by Baillie Gifford & Co Limited are listed on the London Stock Exchange and are not authorised or regulated by the Financial Conduct Authority.

A Key Information Document is available by visiting bailliegifford.com

Welcome to Kepler Trust Intelligence

Please enter a valid email address
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid email address
{{item.msg}}
Please check your email. If an account exists you'll be sent instructions on how to reset your password.
To ensure that we are able to provide content which is appropriate for you, please tell us a little about yourself.
Please choose an option
{{item.msg}}
Please enter a company name
{{item.msg}}
Please enter a location name
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a platform
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a trust
{{item.msg}}
?
The information contained herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in the United States to or for the benefit of any United States person (being residents of the United States or partnerships or corporations organised under the laws thereof). The investment funds referred to herein have not been registered in the United States under the Investment Company Act of 1940 and units or shares of such funds are not registered in the United States under the Securities Act of 1933.
Please confirm
{{item.msg}}
Please select an option
{{item.msg}}
See benefits
A free Kepler Trust Intelligence account allows you to access premium content including the ‘Kepler View’ – our verdict on the trusts we cover – and historical research so you can see how our view has changed over time. An account also unlocks useful facilities like the ‘follow’ button which lets you keep track of the trusts you’re interested in and as a logged in user you can also download PDFs of our research, and choose the layout of the page you’re reading to suit your preference. We will not share your details unless you give us permission to do so, and we won’t bombard you with emails – we only send one a week.
Please select an option
{{item.msg}}
Please enter your first name
{{item.msg}}
Please enter your last name
{{item.msg}}
Please enter a valid email address
An account already exists with this email - have you forgotten your password?
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid password
{{item.msg}}
How will this information be used? Your answers help us to tailor our content to relevant investment trusts, and to ensure that the asset allocation and portfolio strategy research we produce is appropriate to our userbase.
Our Website uses Cookies Cookies are small text files held on your computer. They allow us to give you the best browsing experience possible and mean we can understand how you use our site. Some cookies have already been set. You can delete and block cookies, but parts of our site won’t work without them. By using our website you accept our use of cookies. For further information please refer to the Kepler Privacy Notice.
Need help?

One more thing...

Did you know, you can 'follow' individual trusts on Kepler Trust Intelligence? Use the functions below to set up alerts and we'll send you research and updates on your chosen trusts.

Suggested trusts to follow

Browse all funds
Need help?
Current Site Kepler Trust Intelligence is produced by the investment companies team at Kepler Partners and is the UK’s premier source of detailed qualitative research on investment trusts. Absolute Hedge is a market leading UCITS research database providing proprietary research on funds, themes and strategies in the UCITS space. Kepler Liquid Strategies is a Dublin domiciled UCITS fund platform featuring a number of best-of-breed fund managers. Kepler Partners is a corporate advisory and asset raising boutique specialising in the regulated funds market in Europe and investment trusts in the UK.