Monks manager sells Baillie Gifford holding

Gerald Smith, the deputy chief investment officer at Baillie Gifford, has sold the largest holding of his Monks ­investment trust, the Baillie Gifford Pacific fund.

The Baillie Gifford fund accounted for 8% of the trust in 2007.

Although the allocation to this Oeic was already down considerably a year ago, it was at 5% of the portfolio still the largest holding of the £1 billion investment trust.

Smith, who took over the man­agement of the Monks investment trust in 2006, only recently completed selling out of the Baillie Gifford Pacific fund, of which he was had been the manager.

“There has never been any double charging of fees, but people did raise the question why we invested in an in-house Oeic,” Smith says. (article continues below)

Simon Elliott, the head of investment company research at Winterflood Securities, says it is unusual to see an investment trust where the largest holding is an Oeic.

“It is also unusual to see the largest holding disappear,” Elliott says.

“From a shareholders’ point of view, this has never been a problem. Given [Smith’s] experience of managing Asia Pacific stocks, it is not surprising that he chose to invest in companies directly.”

Direct book positions allow Smith to add higher conviction holdings within the Asia Pacific region. He says selling out of the fund does not reflect a loss of conviction in the fund itself or the region as a whole.

In fact, Smith almost doubled his exposure to the Asia Pacific region over the past two months.

At the end of August, 19.5% of the portfolio was invested in the Asia Pacific region, up from 10.9% in April last year.

On a country level, direct holdings in China increased by 8% over the past couple of months owing to recent investments in consumer and out-of-favour stocks.

Monks’s allocation to equities increased from 68% at the end of April to 92% at the end of August. Over the same period the bond allocation decreased from 21% to 7% and the cash level from 11% to 1%.

Smith took out additional borrowings of £40m in combination with a 30-year interest rate swap to give an overall interest rate of 5.4%.