Monks ups allocation to emerging markets

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Monks has upped its allocation to emerging markets to over a fifth of the portfolio as the investment trust’s share price moves from discount to premium in its latest half year results.

The Monks Investment trust share price returned almost double the returns of its benchmark with 14.5 per cent for the six months to 31 October, compared to 7.3 per cent in the FTSE World index.

Its net asset value for the period was 13.6 per cent.

The fund, managed by Charles Plowden, reduced its allocation to North America over the period from 47.1 per cent to 43.8 per cent and has trimmed UK exposure from 6.3 per cent to 6.1 per cent.

Meanwhile, emerging markets have increased to 21.4 per cent from 18.9 per cent of the portfolio at the end of April. Japan exposure has increased 1.4 per cent to 7.7 per cent and the investment trust’s Europe ex-UK allocation rose one percentage point to 17.4 per cent.

Monks’ largest holding, South African pay TV and social media company Naspers, which is 3.5 per cent of the portfolio, and Alibaba were among the period’s largest contributors to performance, along with US tech business Nvidia.

Monks chairman James Ferguson says increased exposure to emerging markets has been a feature of the portfolio since the current team took over in April 2015. Over that period it has increased from 13.7 per cent to 21.4 per cent.

Ferguson attributes the increase to bottom-up stock picking, plus the rise of middle-class spending power creating long-term growth opportunities, particularly in Asia.

Alongside Alibaba and Nvidia, the fund has high-conviction holdings in Taiwan Semiconductor Manufacturing Company and Samsung, which represent 2.3 per cent and 1.9 per cent of the portfolio respectively. Over the last six months it has added Indian financial stocks, ICICI Bank and HDFC, and Brazilian bank Bradesco.

In Japan, the fund managers introduced residential holdings business Iida Group and recruitment company Persol Holdings.

The fund managers reduced weights in several US companies, including secondhand autos business CarMax, cement business Martin Marietta and online broker TD Ameritrade.

“Whilst the managers remain upbeat on US economic expansion, they feel that in some cases share prices are now more fully reflective of their own optimism for these businesses,” says Ferguson.

Financials and technology are the only sectors that the fund has added to over the last six months, now representing 27.7 per cent and 15.4 per cent respectively.

The investment trust has slightly reduced its gearing to 5.9 per cent from 6.6 per cent six months earlier. Ten per cent is considered the long-term neutral position.

The investment trust says it is working to attract long-term shareholders rather than those with a shorter investment horizon and has issued shares 100,000 at a 3.1 per cent premium to the company’s cum income net asset value.

The results note that the half-yearly results are the first period during which its new fee structure has been in place, with the base fee of 0.45 per cent falling to 0.33 per cent on assets over £750m.