Trustnet Magazine Issue 24 December 2016 | Page 20

IN FOCUS

/ FUND, PENSION, TRUST /

Fund

Trust

SCHRODER RECOVERY

MONKS INVESTMENT TRUST

This fund is a top-quartile performer over the long-term, despite the fact its
investment strategy has supposedly been out of favour

Despite the subdued outlook for global growth, manager Charles Plowden sees
numerous opportunities for investors who focus on company fundamentals

140%

Schroder Recovery (133.96%)

120%

FTSE All Share (69.05%)

100%

IA UK All Companies (66.99%)

“Share price is tied to earnings
growth,” Plowden explained,
pointing out that companies
with the fastest earnings growth
outperform on average by 9 per
cent, while those with the slowest
underperform by 8 per cent.
“Successful equities can make
many multiples of investment,” he
added. “Successful investment is
not about avoiding the losers, but
doing everything we can to keep
the winners in the portfolio.”
The team splits companies
into four types: growth stalwarts,
rapid growth, cyclical growth
and latent growth. Of the 110
stocks currently in the portfolio,
Plowden says a third of these
fall into the “rapid growth”
classification. These include a
number of online companies
such as Amazon, Naspers,
Google’s holding company

Alphabet and Alibaba. Growth
stalwarts make up another 21
per cent of the portfolio, latent
growth accounts for 15 per
cent and the rest is made up of
cyclical growth holdings.
Gearing in the trust remains
at 6.5 per cent after the
management deployed cash in
September 2015 and January
2016, but its long-term target
stands at 10 per cent.
The discount to NAV narrowed
from 14 per cent in March
2015 to 8 per cent today. Its
management is keen to put
greater emphasis on marketing
the trust to retail investors.
The team behind Monks
already manages the Baillie
Gifford Global Alpha Growth
fund, which has delivered a
49.18 per cent return over the
past three years.

PERFORMANCE OF TRUST VS SECTOR IN 2016
40%

Monks Investment Trust (29.04%)
IT Global (16.46%)

30%
20%

Source: FE Analytics

trustnetdirect.com

Nov

Oct

Sep

Aug

-20%
Jul

Dec 15

Dec 14

Dec 13

Dec 12

Dec 11

Dec 10

Dec 09

-40%

-10%

Jun

-20%

0%

May

0%

10%

Apr

20%

MANAGERS: Charles Plowden,
Spencer Adair & Malcolm
MacColl
LAUNCHED: 01/01/1929
DISCOUNT/PREMIUM: -6.55%
OCF: 0.62%

Mar

40%

Feb

60%

Jan 16

FILE

Source: FE Analytics

18

I

N ITS MOST RECENT WORLD
ECONOMIC OUTLOOK,
the International Monetary
Fund outlined a more subdued
forecast for global growth of 3.1
per cent in 2016 and 3.4 per cent
in 2017. For investors, however,
backing the world economy can
still prove to be lucrative.
The Monks Investment Trust,
for example, has returned 29.04
per cent in 2016 to the start of
November, compared with 16.46
per cent from the IT Global sector.
“Growth investing is not the
only way to make money, but in
our view it is the very best,” said
Charles Plowden, manager of
Monks. Since taking charge in
March 2015 alongside deputy
managers Spencer Adair and
Malcolm MacColl, Plowden
has set about restructuring the
closed-ended fund to reflect
this investment philosophy. The
team has continued to pare back
residual holdings, which now
account for just 1.3 per cent
of the portfolio. It now focuses
heavily on earnings to identify
the companies with the best
growth potential.

80%

Dec 08

MANAGERS: Nick Kirrage & Kevin
Murphy
FUND SIZE: £885m
LAUNCHED: 18/02/1992
OCF: 0.91%
FE CROWN RATING:

and has a clean ongoing charges
figure of 0.91 per cent.
Square Mile Research said:
“Although the managers are
relatively early in their careers, they
have a sound appreciation of the
dangers that this type of investment
can entail and they understand
the requirement for a committed
approach to an investment process
such as this.”
“There is ample empirical evidence
to support the notion that such a
strategy works, although buying
such out of favour stocks requires
steely determination; after all, they
will often have few other redeeming
qualities other than the low price,”
the team explained.
“Investors should enter a fund
such as this with their eyes open
and be prepared to weather the bad
times as much as the managers who
are running the fund.”

PERFORMANCE OF FUND VS SECTOR AND BENCHMARK

Dec 07

FILE

Along with Kevin Murphy, Kirrage
runs the £885m Schroder Recovery
fund, which invests in companies
in out-of-favour areas that the
managers believe are capable of
turning themselves around.
Despite the underperformance
of value investing, the fund has
outperformed the FTSE All Share
index and IA UK All Companies
sector by 64.91 and 66.97 percentage
points respectively over the past 10
years.
The fund is a top quartile
performer in its sector over the past
six months as well as over one, five
and 10 years. It is in the second
quartile over three.
Schroder Recovery currently
has a high weighting to banks
(HSBC, RBS and Barclays), miners
(Anglo American and South32) and
supermarkets (Tesco) among its top
10 holdings. It yields 1.97 per cent

Dec 06

V

ALUE INVESTING HAS
MADE SOMETHING OF A
COMEBACK THIS YEAR,
but according to Schroders
manager Nick Kirrage, it still
has a long way to go before it
reaches parity with its growth
equivalent.
The MSCI UK Growth index has
made almost double the gains of
MSCI UK Value over the past 10
years, but this trend has reversed in
2016, with the latter outperforming
the former by 14.68 percentage
points.
“Value investing has
underperformed like a train for 10
years and as a result a huge amount
of clients – I mean 90 per cent of
clients – are tilting their portfolios
towards more growth investments –
quality, franchise-ability, whatever it
may be – not value,” said Kirrage.
“If that is the case and value has
been underperforming for 10 years,
if you are not considering rotating
now into value, you are never going
to do it.”
“With 90 per cent of your money
one way you should be looking at this
now. We all know you should buy low
and sell high, but bringing yourself to
do this is hard.”