It’s been an up-and-down few years for Monks Investment Trust (LSE: MNKS). In 2020-21, the FTSE 250 trust served up significant outperformance, only to then disappoint shareholders for three straight years.
But in the 12 months to 30 June, Monks outperformed the FTSE World Index, delivering a 9.7% share price return versus 7.8% for the benchmark. And year to date, the investment trust is also ahead of the market.
Three growth buckets
The aim of Monks is to achieve returns by investing globally in growth stocks from any sector. It currently holds around 100 shares, with the portfolio structured into three key buckets: rapid growth, growth stalwarts, and cyclical growth.
Rapid growth is pretty self-explanatory. These are businesses capitalising upon large growth opportunities, such as Nvidia in AI, Brazilian digital bank Nu Holdings, South Korean e-commerce firm Coupang, and e-commerce enabler Shopify.
Growth stalwarts are durable franchises that tend to deliver the goods in most macroeconomic environments. This part encompasses well-known brands like Microsoft, Mastercard, Amazon, and Meta Platforms.
The final bucket contains firms with strong structural growth prospects, but where there might be a bit of cyclicality here and there. Top holdings here include Ryanair, building materials group CRH, and Chinese battery giant CATL.
Portfolio adaptation
In a recent investor update, Monks wrote that “interest rates are no longer zero. Tariffs are back. Nationalism and populism are on the rise. President Trump’s sweeping import tariffs…Economic uncertainty has surged, and the range of plausible macroeconomic scenarios has widened. The old order is not coming back.”
In response to this new macroeconomic reality, the trust has been adapting the portfolio. It has sold Adidas, which relies on a globalised supply chain and frictionless trade.
Monks has also been crystallising gains from strong winners and recycling them into new positions. For example, it pruned back Spotify and MercadoLibre and used the proceeds to initiate a new holding in Uber.
The market appears to underappreciate Uber’s longevity and robustness, while we believe the company has the potential to transform urban mobility and become a major player in the future of autonomous transport.
Monks.
Buybacks and discounts
In the year to 30 April, the trust bought back £321m worth of its own shares (12.4% of issued share capital). However, a 10% discount to net asset value (NAV) remains.
While I’m in favour of the board buying back shares to try and narrow the discount, there’s no guarantee of success (the gap could even widen).
Meanwhile, net gearing stood at 8.9% in April. That’s pretty modest and is below the board’s borrowing target. But gearing can still magnify losses as well as juice gains. In other words, gearing adds risk as well as reward, especially in volatile markets.
Final thoughts
There’s a solid range of diverse growth opportunities across the portfolio, spanning different sectors and geographies. And around 25% of Monks is invested in businesses that power, build or benefit from AI.
These range from Disco Corporation (dicing, grinding and polishing equipment for semiconductor wafers) to software giant Salesforce (which is releasing AI agents).
My portfolio is already pretty full with investments trusts at the moment. But weighing things up, I reckon investors should consider including Monks shares in a diversified portfolio.
