InvestmentsMay 28 2013

Walsh tackles Monks trust performance

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ByEleanor Lawrie

Baillie Gifford’s Tom Walsh has overhauled the £1.1bn Monks investment trust in a bid to address its poor performance.

Mr Walsh joined the trust in January after discussions with the board about performance. He said he was not aware of any plans for the trust’s lead manager, Gerald Smith, who has been at Baillie Gifford for 24 years, to step down.

“The idea of me joining was to lend more assistance. Performance hasn’t been as we might have hoped and we looked at ways to improve it,” he said.

“We thought it might be helpful having an extra pair of hands with the running of the trust.”

Since becoming deputy manager, Mr Walsh said the trust had ramped up its equity exposure, cut fixed income exposure and sought to address its negative gearing stance.

The trust has outperformed its FTSE World index benchmark in 10 years but has severely lagged the index in five, three and one-year terms.

Monks has delivered a share price total return of 6 per cent in five years compared with a 45 per cent return by the FTSE World index, according to FE Analytics. In three years it has delivered a 27.9 per cent return, compared with the index’s 43.6 per cent, the data provider added.

“Since I joined the trust in January, it’s taken some time to get to know the portfolio,” he said. “Some stocks have been pulled, and one area we focused on was our gold holdings.” The manager said the biggest reductions had been to his gold-related stocks, and many of the sales had come before the precious metal’s precipitous April tumble.

The proceeds from the reductions have been put into areas such as technology, where Mr Walsh said internet start-up companies provided a bright spot for potential growth.

The second highest holding in the trust is nanotechnology company Nanoco, and Mr Walsh said that valuations were attractive “in the context of growth potential”.

Elsewhere, Mr Walsh said he had changed the trust’s present stance on gearing. He suggested that the reduced exposure to markets by the trust early last year “really was not helpful” to the performance of the trust, and that this was exacerbated by poor stock selection.

Monks has the capacity to gear its equity holdings to the equivalent to 30 per cent of the trust’s assets, but had actively reduced its exposure to markets to 98% through the use of derivatives.

The trust stood at a 14.3 per cent discount to the value of its assets as at last week, according to the Association of Investment Companies.