Monks investment trust has made a plethora of trades in the first half of its financial year after the Covid pandemic caused an “avalanche of change” in markets.
The popular £3.2bn investment company had a reasonable start to its financial year, returning 6.5%, around 2.4 percentage points lower than the FTSE World index benchmark’s 8.9%.
However, over the medium-to-long term the trust’s performance has been outstanding. Indeed over five years it has made 157.8%, almost double the 83.6% return of the benchmark.
Total return of fund vs benchmark over 5yrs
Source: FE Analytics
In its update on the six months to 31 October, manager Spencer Adair revealed a number of changes that he had made to the portfolio, all with a focus on technology and innovation.
He said: “Innovation is speeding up and spreading across the economy. In this regard, we believe that we are closer to the beginning of this process than the end.
“The pandemic has accelerated this change. There are an increasing number of technology led or digitised companies within the Monks portfolio. Rather than thinking of this period as having pulled forward some portion of finite demand, it would be more accurate to think of it as a catalyst which has tipped a range of industries out of their previous equilibria.
“The erosion of inertia serves to highlight how important it is to recognise early the likely adoption of new products and services and the enduring growth opportunities they represent.”
Below Trustnet highlights the key changes that have been made to the portfolio in the past six months.
New purchases
One of the fund’s new technology investments is Peloton, a home fitness company that manufactures exercise equipment with integrated software. Users can participate in fitness classes from home, something that became particularly crucial during lockdowns last year.
The firm, which Adair said was “a new alternative to gym memberships”, is unique in that it specialises in both hardware and software, and is focusing on lowering prices to increase its customer base.
The US online car marketplace, Carvana was another purchase by Monks Investment Trust. Its business model removes several barriers usually faced in the process of buying a car and Adair said said its “scale and brand” were key to its future growth.
The producer of dairy alternatives, Oatly was also purchased by the Trust in recent months, although this was not a pandemic-driven buy.
The oat-based drink provider has an “eye-catching brand”, according to Adair, who said that the first should benefit from the move away from traditional dairy to environmentally friendly alternatives.
Another new investment to the portfolio is DENSO, a Japanese car parts supplier that was formerly part of the Toyota Group. Adair said he had bought into the company to play the rising popularity in electric vehicles.
The Monks Trust also added new holdings in the software development companies, Certara and Topicus. Certara technology is used within the medical sector to simulate the effects of drugs on patients and Topicus provides clients with market analysis.
Adair said that, “software is an area of increasing enthusiasm, as it becomes increasingly important across a broad range of industries.”
The other area of interest in private companies, where Adair said the trust has increased its exposure to the Schiehallion Fund, which now represents 4.3% of the total portfolio, with a further 1.7% invested directly in private companies
Shares that were sold
On the other side of the coin, Advantest, a company that tests semi conducts, was removed from the trust’s portfolio despite strong returns. According to Adair, growth was beginning to slow and its business model was very similar to another of Monks’ holdings.
Despite being a duopoly with fellow Monks holding Teradyne, “the company's strong performance against a hugely supportive backdrop of healthy demand in recent years has been fully reflected in the share price,” he said.
Resmed, which provides medical equipment for people with sleep apnea, was also sold after “underwhelming efforts” to improve its software.
US online credit platform Lendingtree was another casualty as the manager feared that rivals had been making “impressive headway” into the industry.
The fund also severed its ties to the US oil and gas business EOG Resources. Despite strong management and a good track record Adair said that the “inexorable direction of travel towards alternative energy” meant he had been forced to sell.
Finally, shares in the Canadian insurance and investment company Fairfax Financial were also sold after the manager raised concerns about the composition of the company’s board.
“Fairfax has delivered disappointing investment results in recent years, having had a strong long-term track record,” he said.
“We have been disappointed by some recent board appointments at Fairfax, which, in our opinion, were insufficiently independent and did not represent good governance.”