High active share, a lack of benchmark constraints and low costs have helped generate significant returns for the Monks investment trust in recent years, according to Baillie Gifford’s Charles Plowden.
Plowden, lead manager of the three crown-rated trust, said its active management approach has helped to deliver strong returns since he took over in 2015.
Monks has emerged as the third best performing strategy in the IT Global sector during the first five months of the year, returning 15.27 per cent.
Performance of trust vs sector & benchmark YTD
Source: FE Analytics
Plowden said: “I think active management is vitally important to us [Baillie Gifford] and the investment trust clients, mainly because that’s what we do.”
“It is important to the economy at large because of the market’s role in allocating capital. Somebody needs to be there to ensure that capital delivers positive returns.”
“It is vital to give your clients the best long-term returns.”
He added: “Active investing for me means investing without restrictions and, in particular, without reference to a benchmark.”
The manager said the team behind the trust believes that growth can be predicted through fundamental analysis.
While stocks in the portfolio fit into different growth profiles, there are cyclical growth themes within the portfolio where the manager has positioned the trust.
Current themes include US recovery, Europe, Japan and re-emerging markets, said Plowden.
The manager added that the US market had been improving prior to the presidential election, but victory for Donald Trump and his pro-growth agenda had boosted it further.
Plowden also said several investments in the portfolio demonstrated the different areas set to potentially benefit from the Trump presidency.
In the financial sector the trust has taken a position in holding company Leucadia National, which as well as interests in a number of industry sectors also includes investment bank Jefferies Group.
The manager said the industry had suffered under the existing regulatory regime, but could benefit from any potential axing of regulations, such as the Dodd-Frank Act, which prevents investment banks from trading their own capital.
Another US stock held by the fund is industrial company Martin Marietta Materials, which has been successful in consolidating its position in the building materials market in recent years despite increased pressures on pricing.
The third stock Plowden highlighted is Royal Caribbean Cruises. The manager said this long-term holding should benefit from improvements in employment levels and a potential uptick in consumer spending.
In Europe and Japan, the manager has invested in similar companies, although he noted that there are different issues facing these markets, highlighting political uncertainty in Europe and the ongoing challenges facing the Japanese economy.
Industrial stock CRH, a building supplies company, is described by Plowden as “a European version of Martin Marietta Materials”, while one of its consumer plays is Ryanair, which he called “one of the best managed businesses in Europe”.
One key difference in this part of the portfolio is an Abenomics play for Japan. The manager is invested in MS&D Insurance, a non-life insurer he said is in a much more concentrated market with greater pricing power.
The final geographic theme in the portfolio is re-emerging markets. Plowden said the recovery in emerging markets was well-established, noting the strong performance of recent years.
“Emerging markets are probably the areas where our views have improved the most over the past 12 months,” he said, adding that underlying exposure in the trust was around 16 per cent.
Within the portfolio, Plowden holds life insurers AIA and Prudential – a UK firm with greater exposure to emerging markets. Other holdings include industrial stock Kansai Paint and capital markets firm BM&F Bovespa.
Since Plowden took over management of the trust in March 2015, it has delivered a 61.92 per cent return compared with a 35.28 per cent gain for the sector and a 32.22 per cent rise in the benchmark.
Performance of trust vs sector & benchmark since March 2015
Source: FE Analytics
The trust, which is co-managed with Malcolm MacColl and FE Alpha Manager Spencer Adair, has an ongoing charges figure of 0.62 per cent.