It has been two years since Charles Plowden took over the running of the Monks Investment Trust following a review of the management by the board.
Launched in 1929, Monks has been managed by Baillie Gifford for around 80 years. Previous manager Gerald Smith ran the portfolio for 10 years, during which it had “five good years and five bad years”, Plowden says.
On 27 March 2015, Plowden, a portfolio manager on Baillie Gifford’s institutional global equities growth strategy, took over the portfolio, supported by Spencer Adair and Malcolm MacColl.
Plowden and his team made most of the changes to the trust in the first three weeks, turning over 55 per cent of the portfolio. While the changes were stock specific, they resulted in the energy weighting being slashed and the 15 per cent allocation to smaller companies being sold to increase liquidity.
Since then, turnover has dropped to a “very modest” 14 per cent per annum.
“We take a five-year plus view,” Plowden says. “We are not trying to trade shares or hitching a ride as shareholders. We let the companies do the work.”
The £1.4bn trust’s main aim is to achieve long-term capital growth by investing in 90 to 130 global growth stocks; there are currently 110. Plowden is not restricted by geo-graphical or sector exposures and says the benchmark, the FTSE World index, “is only for reference. It’s the broadest we could find”.
Plowden and his team are active investors; the trust’s active share is 93 per cent.
“This shows we are trying to outperform,” he says. “Monks is not about relative performance of the index. We are aiming for outperformance of 2 or 3 per cent of the benchmark.”
The average holding is under 1 per cent, although a small number of holdings are allowed to grow. The largest position is Amazon at 4 per cent, which has grown through share price performance. In the bottom of the portfolio are 40 smaller, incubator holdings.
“These are riskier but have greater potential upside,” Plowden says. “We could lose the bulk of our investment in any one of those, but they could also make multiples of the money invested. We are more worried about missing a winner than including a loser.
“We have made more than 40 times the money invested in Amazon since [the global equities growth strategy] invested in 2006,” he adds. “We are trying to make sure we invest in the next Amazon.”
Over the past five years, Royal Caribbean cruises has been one of the best performers across the strategy, Plowden says. “It has made four times the money invested since 2012. It is one of the largest holdings and we still see significant upside.”
Companies in which the strategy invests are expected to grow their profits by 10 per cent per annum and double in value over five years. Carlsberg, a 1 per cent position, has disappointed in this respect.
“We have owned Carlsberg for several years. It has disappointed through no fault of its own. Its biggest single market is Russia, followed by France and the UK, where the economic background has been pretty miserable. Carlsberg has done well to maintain its profits but the share price has done nothing. “
However, Plowden says there are reasons for cautious optimism with Carlsberg.
“The Russian economy is looking better than it was. The company has a new management team, and it has a valuable position in China. There is scope for a re-rating if the earnings get going.”
Since 27 March 2015, the Monks Investment trust has returned 56.3 per cent compared to the 32.6 per cent of the IT Global sector average, according to FE.
Charles Plowden is manager of the Monks Investment Trust