The Results Round-Up –
Which investment company has grown its NAV per share by +891% over the last 15 years? And what gets Monks’ investment managers excited?
By
Frank Buhagiar
05 Jul
Monks’ (MNKS) Investment Managers Reveal What Gets Them Excited
MNKS’ NAV total return came in at +17.6% for the full year while the share price total return matched the FTSE World Index’s +19.1% exactly. On the one hand, Chairman, KS Sternberg, is encouraged by the return to positive relative performance after the last two years’ declines but on the other ‘we are well aware that on a NAV basis, this is the third year of underperformance.’ In response, the investment process has been refined with a particular focus on valuation discipline. The managers explain, however, that the core approach to managing Monks remains consistent: selecting stocks on the basis of their fundamental attractions without reference to the index; investing in a diversified portfolio of companies that can deliver superior levels of earnings growth; and allowing compounding to ‘work its magic’ by being patient.
The investment managers go on to talk about what gets them excited ‘Growth companies excite us. From AI, to gravel, to storm drains, to digital payments, Monks seeks to give shareholders exposure to the world’s leading beneficiaries of change, whatever the sector, wherever in the world.’
Numis: ‘Monks is differentiated from its stablemates: Scottish Mortgage (more concentrated plus unquoteds); Edinburgh Worldwide (smaller companies); and Scottish American (income mandate). Since the team took over management on 27 March 2015, Monks’ NAV has risen 172% (11.4% pa), slightly underperforming FTSE World Index which has returned 187% (12.0% pa).’
JPMorgan: ‘MNKS is large for an investment company with a market cap of £2.4bn and has low competitive costs (44bps) and it trades at one of the wider discounts in the AIC Global sector at 11.6% vs the average of 9.0%. In our view MNKS is one of the better global equity growth options in the sector and we remain Overweight.’
Investec: ‘We regard Monks as a core strategic holding for investors looking for a well-managed, lower-risk and low-cost exposure to Baillie Gifford’s best global growth ideas. A differentiated philosophy, strong corporate governance and a strong balance sheet represent solid foundations and Monks is well-positioned when markets broaden from historically narrow levels.’
Artemis Alpha (ATS), Showing How It Can Pay to Be Different
ATS’ NAV per share gain for the year was double that of the FTSE All-Share – up +15.1% compared to the index’s +7.5% on a total return basis. According to Chairman, Duncan Budge, ATS was able to achieve this because the portfolio bears little relationship to the FTSE All-Share and ‘the stock-selection is not constrained by it. As the last three years have shown, short-term performance is likely to bear very little resemblance to the benchmark; our aim remains to out-perform it over the long term.’ Vive la difference!
Looking ahead, Budge cites an improving macro environment and low valuations across the UK market as reasons to be optimistic. ‘Many of our investee companies stand to benefit from the improved prospects for consumer spending reinforced by clear competitive advantages’. The Chairman is also looking forward to the prospect of a more stable political environment after the election’ as this may help to improve the rating of UK companies.
Numis: ‘Artemis Alpha (ATS) has a triennial tender for 25% of share capital at a 3% discount, with the next due to take place later this year at the AGM. Within its annual results, the Board comments that the tender will be subject to the level of the discount prevailing at that time as well as shareholder approval’.
BlackRock Sustainable American Income (BRSA), Focusing on Quality
BRSA’s NAV per share return marginally outperformed the benchmark over the half year – up +15% compared to the Russell 1000 Value Index’s +14.8%. The NAV performance wasn’t far off the +17.2% clocked up by the larger-cap S&P 500 (sterling). The biggest contributor to relative performance was stock selection, particularly in the healthcare and consumer discretionary sectors. The investments managers believe the current “late cycle” economic environment in the US is ‘best suited for ‘quality’ companies, i.e. those which demonstrate consistent earnings, have strong balance sheets and have savvy management teams among other characteristics. These companies should be well positioned to manage through the economic cycle’.
Valuation discipline is important too ‘we feel valuation discipline is key given higher than average forward price-to-earnings ratios for equity markets.” As is a “focus on more secular themes which may offer more attractive investment opportunities, such as reshoring and AI/digitalisation.’ What could be called the QVT approach – Quality, Valuation, Themes.
Winterflood: ‘Share price TR +15.9% as discount narrowed slightly from 10.1% to 9.6%; 2.9m shares (3.6% of shares in issue) bought back for £5.6m. EPS -20.5% YoY to 1.59p, reflecting portfolio mix tilting to lower yielding stocks’.
Oryx International Growth (OIG) Cashed Up and Ready to Go Again
OIG reported a +12.2% increase in NAV for the full year. As Chairman, Nigel Cayzer, writes ‘When compared against the smaller companies indices, this is a good result.’ The longer-term track record is even more impressive. Over 15 years, NAV per share is up +891.0%; 10 years +211.7%; five years +76.3%; and three years +0.8%. The equivalent figures for UK small caps are +265% over 15 years; +29% for 10 years; +17% for five years; and +6% over three years. Apart from the three-year timeframe, a full house.
Back to the year under review, performance was driven by an outbreak of M&A activity among the portfolio holdings. As the investment managers write ‘Recent corporate actions will substantially increase our cash reserves, enabling us to take advantage of opportunities as they arise.’ And so, the cycle begins again.
Winterflood: ‘Share price TR -1.8% as discount widened from 19.0% to 29.1%; no shares repurchased.’
Polar Capital Global Financials (PCFT) Getting More Active
PCFT outperformed over the half year – NAV and share price total return came in at +18.2% and +23.3% respectively compared to the MSCI ACWI Financials Index’s +15.9% net total return. As the investment managers explain, the global financials sector has been a beneficiary of the higher interest rate environment, ‘the rapid rise in interest rates has been a tailwind for the banking sector’ That’s not all. ‘Equally insurance companies have benefited from the rise in interest rates and bond yields, which has boosted investment income and therefore profitability’.
With interest rates expected to start coming down (at some point), the managers believe they may have ‘to be more active than we would otherwise be in positioning the Trust’s portfolio to benefit from the sector’s tailwinds as well as navigate around some of the risks.’
Winterflood: ‘Europe allocation was the largest geographic contributor to relative performance, while India and Philippines detracted. Overweight allocation to alternative asset managers contributed. The managers remain constructive on the outlook for Financials, and note that, as the biggest spender on technology, the sector is expected to be one of the key beneficiaries of AI efficiencies.’
Numis: ‘Since the fund’s reconstruction in April 2020, PCFT has returned 112.8% on a NAV total return basis, as compared to 112.5% for the MSCI ACWI Financials. We believe the fund is an attractive holding for exposure to financials. PCFT is currently trading on a 8% discount to NAV.’
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