Monks
Lovett-Turner says the trust has a good long-term outlook and a quality manager, and that recent underperformance is due to a growth bias, which should help in the long-term
Over the past year the balance of the portfolio has moved away from emerging markets, to 9.9 per cent in April 2014 from 18.4 per cent in 2013, due to headwinds from macroeconomic policies.
The portfolio has been partly rebalanced towards the US, to 34.19 per cent of the portfolio from 29.3 per cent), including its second largest holding, motorcycle manufacturer Harley Davidson.
“However, this does not change Smith’s view that greater long-term growth opportunities in more rapidly growing economics,” Turner said.
“Oil Service companies continue to be favoured over major integrated oil and gas, but positions have been trimmed. In addition, the portfolio continues to have no exposure to banks.”
“During the year, effective gearing has been close to 0 per cent, and at 30 April was -1 per cent with debt offset by cash and a put option on Chinese companies, listed in Hong Kong.”
Oriel Securities Iain Scouller says there are a few international trusts currently trading on as wide a discount as the £1bn Baillie Gifford Monks investment trust.
It is currently at 12.9 per cent although was recently at 14 per cent, its widest level for the previous 6 months, with a range of 14 per cent to 8 per cent, he says.
Gerald Smith has been managing the trust since May 2006 but was joined by deputy manager Tom Walsh in September last year.
The trust has underperformed over the past few years with performance lower than its IT Global sector average and its benchmark, the FTSE World Index.
According to FE Analytics, over the past three years it has returned 14.09 per cent compare to an average return in the sector of 25.38 per cent and a rise in its benchmark of 36.05 per cent.
Performance of trust, sector and index over 3yrs
Source: FE Analytics
Scouller says Monks may perform relatively well in more difficult market conditions in comparison to another popular Baillie Gifford investment trust: Scottish Mortgage, which is currently trading on a 2.2 per cent discount, making it well-suited to investors with a more bearish outlook.
The trust is also invested heavily in the UK with 21 per cent in UK equities, though it also has exposure to Asia through tech companies such as Taiwan Semiconductor Manufacturing and Samsung.
The Monks IT has ongoing charges of just 0.62 per cent and a small dividend yield of 1.1 per cent.
Mercantile
Lovett-Turner says this trust has been a recent victim of the sell-off in UK small and mid caps, causing investors to take profit, and it is attractive on the current discount.
While markets have rebounded from the recession over the past three years, the greatest beneficiaries have mostly been small and mid caps, which have re-rated more rapidly than their larger cap counterparts.
The FTSE 100 has risen 32.55 per cent over the past three years compared to a rise of 48.75 per cent in the FTSE 250.
Performance of indices over 3yrs
Source: FE Analytics
However, recently a flatter market and choppier conditions have seen larger caps outperform.
Performance of indices in 2014
Source: FE Analytics
Many of the smaller companies and mid-cap specialists have seen a sharp de-rating in discount terms over the last few weeks, Scouller says.
“This reflects some profit-taking and also some significant weakness in the net asset values (NAVs) against a backdrop of a 5 per cent decline in the FTSE Small Cap index over the past 3 months,” he said.
The £1.9bn JPM Mercantile investment trust, which invests primarily at the lower end of the cap scale has widened to an 11.4 per cent discount, its widest level over its 6 month range of 11.4 per cent to 7 per cent, Scouller says.
It is co-managed by Martin Hudson, Anthony Lynch and Guy Anderson. Over three years it has returned 57.17 per cent compared to an average return in its IT UK All Companies sector average of 40.03 per cent.
Performance of trust, sector and index over 3yrs
Source: FE Analytics
It has high exposure to house builders with three companies – Persimmon, Bovis and Taylor Wimpey – in its top ten holdings, making up 7.5 per cent of the portfolio.
House builders have recently taken a hit after George Osborne announced the governor of the Bank of England, Mark Carney, would be given more power to cap mortgage ratios.
The JPM Mercantile investment trust has ongoing charges of just 0.51 per cent and a dividend yield of 2.6 per cent.
Standard Life UK Smaller Companies
Lovett-Turner says the £250m Standard Life UK Smaller Companies investment trust, managed by FE Alpha Manager Harry Nimmo, also focuses its investment at the lower end of the cap scale and therefore has also suffered from the recent sell-off.
Nimmo’s record and its history of trading on a premium makes it very attractively priced at the current time, he adds.
Standard Life UK Smaller Companies has seen an 8 per cent fall in its NAV and a 14 per cent decline in its share price in 3 months and it is currently on a 4.7 per cent discount compared with a 6 month range of 5 per cent to a 6 per cent premium.
Nimmo is best known for his open-ended Standard Life UK Smaller Companies fund, which alongside this trust has recently been hit by sharp falls in ASOS, a top ten holding in both the fund and the trust.
Over three years it has returned 32.22 per cent compared to the average return of 46.84 per cent in its IT UK Smaller Companies sector average.
Performance of trust, sector and index over 3yrs
Source: FE Analytics
The Standard Life UK Smaller Companies IT has ongoing charges of just 1.17 per cent and a small dividend yield of 1.4 per cent.
