Growth investing may be creeping back into favour as investors bet on an end to interest rate hikes, but that hasn’t yet fed through to the Baillie Gifford-managed Monks Investment Trust (MNKS) judging by first half results.

Net asset value total return slipped 3.3% for the six months to 31 October, underperforming the FTSE World index which gained 2.3%.

A widening of the NAV discount to 11.3% meant the share price total return was minus 7.3% for the period.

Monks has utilised some of its flexibility to borrow and has spent around £300 million on share buybacks in the last year to manage the discount, now at its widest level since the Great Financial Crisis.

The Monks board said it ‘intends to continue to buy back while the company's shares trade at a substantial discount to NAV. It continues to evaluate the range of alternative options at its disposal to seek to address the discount.’

The shares gained around 1% to £10.14 in early trading and are up around 7% for the year.

WHY DID THE FUND UNDERPERFORM?

Commenting on performance, Monks said: ‘It has been a bruising period performance-wise. But beneath the difficult headline numbers resides a portfolio in robust health.

‘Forecast earnings growth - at nearly twice the market average - is coiled and ready to drive returns for shareholders in the years ahead.’

Among the largest detractors from performance was Monk’s holding in closed end fund Schiehallion (MNTN), which saw its discount to NAV widen from 25% to 50% reflecting investors’ ‘aversion to assets whose valuations are founded on long-term potential’.

The company said it remains enthusiastic about the potential of both Schiehallion and the handful of directly-held private businesses it owns such as Bytedance and SpaceX.

Monks pinned the sharp 20% to 30% falls in the share prices of French spirits business Pernod Ricard (RI:EPA) and Japanese cosmetics company Shiseido (TYO:JPN) on weak consumer demand in China which it believes is temporary.

The fund’s healthcare holdings accounted for around 40% of the underperformance.

At the other end of the performance spectrum, the biggest contributors were technology giants Meta Platforms (META:NASDAQ) and Amazon (AMZN).

GROWTH THEMES

Looking ahead, Monks said it continues to pursue opportunities from key structural growth themes including the new growth frontiers of cloud, data, and artificial intelligence.

A second theme identified is infrastructure spending driven by ‘re-shoring trends and infrastructure spending bills which are likely to support a material uptick in capital spending on areas including roads, energy and digital networks.’

Lastly, Monks highlighted its advantage from taking a long- term approach when the market’s investment horizon shrinks during times of uncertainty.

‘As long-term investors, this gives us a heightened advantage in identifying secular growth companies that are facing near-term headwinds that are obscuring the potential for long-term growth.’

LEARN ABOUT MONKS

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