This trust has underperformed for years. Is it finally due a turnaround?

The manager has admitted mistakes but remains convinced of the strategy

Charles Cade

10 July 2025

Questor is The Telegraph’s stock-picking column, helping you decode the markets and offering insights on where to invest.

How long should you persist with an underperforming fund? Should you sell and cut your losses, hold and wait for a turnaround, or even add to the holding? This is the scenario facing investors in Monks, a £2.4bn global investment trust managed by Baillie Gifford.

The reason Monks has lagged global equity markets in recent years is not hard to understand. Like other funds managed by Baillie Gifford, Monks has a clearly defined investment approach that prioritises long-term growth. This style performed well for many years, but has suffered since the period of low interest rates ended in 2021. Even when AI mania drove markets in 2023, Monks struggled to keep up with global markets as it was underweight the ‘Magnificent Seven’.

A sell-off in growth stocks following Trump’s Liberation Day in April this year was particularly painful, and although performance has picked up since, the net asset value (Nav) total return since the start of 2022 is just 4pc versus 33pc for its FTSE World benchmark.

Lead manager, Spencer Adair, acknowledges that Monks was slow to rebalance the portfolio in late 2021 when early-stage growth stocks represented more than half of the portfolio. In addition, some mistakes have been made in stock selection. For instance, a number of healthcare holdings have performed poorly over the past year, and a long-standing position in Moderna (vaccines) has been sold.

However, he points out that the portfolio is high quality, with superior margins, stronger cash flows and lower debt than global indices. The three-year annualised earnings growth forecast remains healthy at 12.5pc versus 8.6pc for the market, but the valuation premium on a forward price-to-earnings basis has decreased from 30pc in early 2022 to just 7pc.

A key focus is companies that power, build or benefit from AI, and these now represent 25pc of the portfolio. Core holdings include Nvidia, Microsoft and Meta, while recent additions include the semiconductor businesses Disco Corporation and Kokusai Electric. Another theme over the past year has been to find companies that are resilient in the face of unpredictable policymaking and rising global tariffs. New holdings include adaptable businesses, such as Uber, and companies focused on local markets, such as Nubank, a Brazilian online bank.

Despite being one of the largest investment trusts, Monks tends to have a relatively low profile, overshadowed by its stablemate, Scottish Mortgage, a FTSE 100 member with a market cap close to £12bn. The two funds share a similar philosophy, focused on long-term growth with no regard to index weightings. However, Monks has a more diversified portfolio, with the top 10 holdings representing 33pc of portfolio vs 44pc for Scottish Mortgage.

Monks also has a broader remit in terms of its exposure to growth companies, and the portfolio is balanced between three categories – Stalwarts, Rapid and Cyclical – with the aim of delivering more consistent returns in the long term. The Stalwarts (36pc by value) are well-established, profitable businesses with strong franchises, such as Microsoft and Amazon. Rapid (33pc) are earlier stage businesses with vast growth potential but are higher risk, such as Nvidia and DoorDash. Cyclical companies (31pc) are well managed and positioned to grow their earnings, but are more susceptible to macroeconomic and capital cycles, such as TSMC and Ryanair.

Another key difference from Scottish Mortgage is that Monks has a far lower exposure to unquoted investments of 3.1pc (including ByteDance, Epic Games and SpaceX) plus 2.7pc in Schiehallion, another Baillie Gifford-managed fund, this time investing in private companies. By comparison, Scottish Mortgage has over 25pc invested in unquoted stocks.

Questor last reviewed Monks in November 2022. With hindsight, the Hold recommendation proved to be wrong and investors would have been better selling out. The question now is whether the fortunes of growth investing are set to turn.

One drawback is that investors are not paid to wait, as Monks has a negligible yield. On the other hand, it has a low expense ratio of 0.43pc and investors are benefiting from an uplift to Nav as a result of buybacks, equivalent to 1.1pc over the past year. Having issued shares when Monks’ shares traded at a premium to Nav, it is encouraging that the board has committed to buying back shares, with the aim of keeping the discount in mid-single digits.

It is not clear that this is the time to add to US equity exposure, which represents almost 60pc of Monks’ portfolio. However, Questor believes Monks holds attraction as a way to harness the best ideas from Baillie Gifford through a diversified portfolio of growth stocks.

Since the Global Alpha team took over management in March 2015, the fund’s annualised Nav total return of 11.2pc is closely in line with global markets, despite the recent period of underperformance.

Questor says: hold
Ticker: MNKS
Latest share price: £13.06