Monks' new managers could improve performance

Currently such an opportunity could exist at Monks Investment Trust (MNKS). This has underperformed its benchmark, the FTSE World Index, both in terms of share price and NAV performance over one, three, five and 10 years. It has also underperformed the Association of Investment Companies (AIC) Global sector average in terms of its share price performance over these periods.

As a result, the trust's board has changed the managers. While Monks will remain with Baillie Gifford, Gerald Smith and deputy manager Tom Walsh will be replaced by Charles Plowden as lead manager and Spencer Adair and Malcolm MacColl as deputy managers.

This same team runs Baillie Gifford Global Alpha Growth Fund (GB00B61DJ021) and Baillie Gifford International Fund (GB0005941272).

Baillie Gifford Global Alpha Growth is in the first quartile of the Investment Association Global sector over three years and second over one year.

It is well ahead of Monks' share price and NAV performance over one, three and five years, and ahead of the FTSE World Index over three and five years. It also beats the AIC Global sector average over one, three and five years.

It is expected that Monks will have an 80 per cent overlap with Baillie Gifford Global Alpha Growth, but be differentiated by holding companies with a market cap under $2bn, and some existing investments which are not easy to trade. Monks' objective of investing internationally to achieve capital growth, which takes priority over income and dividends, remains unaltered.

Monks had been trading on a discount to NAV in excess of 14 per cent, and, since the announcement of the management change, this has come in to 12 per cent. However, this is still wider than the Global sector average discount, which is about 6 per cent, so if performance improves Monks' discount could tighten further.

Analysts are generally positive on the move. Alan Brierley, director, investment companies, at Canaccord Genuity, says: "If the new management team can extend what is a strong long-term track record, then we would expect a long overdue re-rating to compound these returns."

He also points out that, since the inception in 2005 of Baillie Gifford's Global Alpha strategy, the composite return has outperformed the MSCI AC World Index by 2.7 per cent annualised, gross of fees. "A high level of consistency has been a feature, with the strategy outperforming in eight years out of 10," he says.

Around 65 per cent of Monks' portfolio is expected to be turned over, which should cost 0.2 to 0.25 per cent, and the transition should be completed by the end of April.

Analysts at Winterflood argue that the trust should take a fee holiday to compensate for this. There is also no guarantee that the new managers will be able to turn performance and tighten the discount.

However, the team has a strong track record and, if performance turns, this should compensate for the portfolio overhaul costs, while Monks' ongoing charge of 0.57 per cent is one of the cheapest in the Global sector. So if you want to take advantage of possible discount tightening and good performance ahead, Monks Investment Trust is still worth consideration. Buy.

Source: Morningstar

Performance (%)

Source: Morningstar as at 10 April 2015. *Cumulative share price performance.

TOP TEN HOLDINGS as at 28 February 2015

Geographic breakdown as at 28 February 2015