Investors should not give up on the Monks Investment Trust despite a wobbly past half decade, according to market commentators, although there is a split on whether now is a good buying opportunity or if investors should just stand pat.
Monks Investment Trust is one of the largest investment trusts in the UK, with around £2.5bn in total assets. Managed by Helen Xiong, Malcolm MacColl and Spencer Adair the strategy aims to achieve “long-term capital growth that takes priority over income” with a patient, actively managed global equity portfolio that covers a range of different growth stocks.
It does this by investing in three types of stocks. First are disruptors – companies that are using technological innovation to drive change in industries. Next are the compounders, or those where investors will get rich slowly. Last are the capital allocators, which are the more economically sensitive companies in the portfolio.
This emphasis on diversified growth stocks has led to some interesting opportunities this year, including the controversial taxi company Uber.
Matthew Read, senior analyst at QuotedData, noted that this has made it a popular choice for investors who want growth in their portfolio without the volatility of its stablemate Scottish Mortgage.
However, recent performance has been challenging. While it was in the top quartile in the IT global in 2024 it has underperformed its average peer and the FTSE World over the past five years, as demonstrated by the chart below.
Performance of Trust vs sector and benchmark over 5yrs
Source: FE Analytics
Experts said investors should not allow this recent period of weakness to dimmish their conviction in the trust. While the temptation to sell may be strong, most agreed this would be a mistake, with two concluding this may be an attractive time to buy it.
Kepler’s Jean-Baptiste Andrieux said that, with central banks expected to continue cutting rates, there is a “more favourable backdrop for its small- and mid-cap names, which are typically more sensitive to economic conditions”.
Because Monks typically trades at a premium during lower interest rate environments, the current discount of 9.6% to net asset value (NAV) “presents an attractive buying opportunity”.
Additionally, he argued that the benchmark’s performance is mostly driven by share re-rating, while the trust’s holdings are growing more strongly than expected. If markets become a bit more fundamentally driven this year, the relative performance of Monks is likely to increase, Andrieux concluded.
Emma Bird, head of investment trust research at Winterflood, agreed that now may present a compelling opportunity to buy Monks.
While the trust tends to deliver more muted returns than its adventurous stablemate, it is also more defensive and far less volatile. Sticking with it over the long term will pay off because the stocks within the portfolio tend not to share similar risks, she explained, adding that the discount means it is good “relative value” for investors right now.
The macroeconomic environment is also compelling. A declining interest rate environment could prompt a broad rotation into a wider set of growth stocks, having been myopically focused on a narrow set of mega-cap tech leaders, which will benefit the trust, she added.
QuotedData’s Read was less positive than his peers above but still bullish overall. He said the portfolio is worth holding onto but stopped short of calling it a buying opportunity.
Instead of "chasing fads” or “rotating defensively”, Monks picks resilient themes that it expects to stand the test of time. It balances between rapid growth stocks that reflect structural changes, such as Novo Nordisk, growth stalwarts to provide ballast, such as Microsoft or Nvidia, and cyclical businesses, such as TSMC, which bring more economic sensitivity.
With so many different themes in the portfolio, it is a strategy that investors should avoid judging based on recent events. Instead it will reward “patience rather than timing”.
However, he was less impressed by the current discount, which he described as in line with long-term averages, making it hard to recommend buying on valuation grounds.
Jonathan Moyes, head of investment research at Wealth Club, also agreed that Monks is a good strategy and recent performance does not justify selling it, but admitted the trust is not his preferred choice for global exposure. Instead, he currently favours its stablemate Scottish Mortgage and Comgest Growth Global.
He argued that blending investment styles can be dangerous and it is “impossible to predict which style will perform best next”. Despite this, managers with the capacity to blend styles may be tempted to try and predict the macro-environment, leading to underperformance.
In a portfolio where investors have the freedom to own multiple funds, “we prefer to back active managers that are dedicated to one specific investment style, such as Scottish Mortgage’s devotion to rapid growth, or Comgest’s devotion to quality”, Moyes concluded.