Fund managers normally appear calm when their funds don’t shoot the lights out. Tom Walsh, deputy manager at Monks Investment Trust (MNKS), is no exception.
The fund is a third-quartile performer (AIC Global Growth Sector) over a three-year period in terms of NAV, having been pipped by a number of rival trusts. And it woefully underperformed its benchmark the FTSE World Index over three years, producing a 20.7 per cent return (share price) as opposed to 38.1 per cent from the index. This year it’s managed a respectable 31.5 per cent share price return, earning it a place in the second quartile. But instead of panicking when things don’t go exactly to plan, Mr Walsh is not planning any major changes to his generalist investment strategy.
He is, however, keeping his eyes peeled for new investment opportunities.
He appears exceptionally excited about the prospect of "disruptive technology" - inventions which drastically alter how people live their lives - or how businesses are run. It's an emerging theme within the fund.
From online hotel booking sites and book shops which have both thrust consumers into new ways of buying - to 3D printing - which he says has the potential to give manufacturing the biggest shake-up it's ever had, he’s looking for the next big thing. And his aim? To spot a game-changer before it's actually done any disruption. And then cash in.
"There are very large profit pools which have the potential to grow very rapidly," he said.
He’s owned TripAdvisor (TRIP:NSQ), the US-listed online travel platform since 2012, and he believes it's still "very early days" in terms of its attempts to generate revenue from its users. He sees an "enormous" end market opportunity, so he has no intention of selling anytime soon.
Also with a comfortable slot in the portfolio is Nanoco Group (NANO) - a UK listed manufacturer of tiny semi-conductor crystals called Quantum dots. He says they have the potential to dramatically improve TV screens, general lighting and solar panels and Nanoco Group has a unique process to manufacture them.
The major reasons why the fund isn't coming out on top are down to its high weightings to struggling commodities and emerging market stocks, Mr Walsh admits. In previous years the trust has been boosted by oil exploration companies - but this year they've done badly.
But the continuing demand for energy is bringing benefit to companies that are able to provide new technology and services for energy extraction, he says.
The Monks Investment Trust has been investing in energy stocks for many years on the basis that global demand for energy has legs and won’t stop growing, Mr Walsh says. But things are getting more difficult.
"The easy resources have been depleted and that is pushing people towards new technology or to push into deep water exploration or other alternatives such as the shale gas revolution in the US," he says.
As a result, he’s now shifting focus away from the bigger oil companies to stocks that provide services for the extraction of energy instead.
Seadrill (0HRK), which runs a leading fleet of oil rigs designed for deep sea environments is the trust’s largest holding (2.2 per cent of the portfolio).
One of his biggest regrets is buying up a load of gold mining companies in 2011. He sold out before the gold price plummeted earlier this year, which served him well as a form of damage limitation, but he still was still disappointed with their performance as a whole.
The fund is geared at 4 per cent because Mr Walsh and his co-manager, Gerald Smith aren’t currently bullish enough to be fully geared at 30 per cent. The decision comes despite the admission that the fund has unnecessarily lost out so far this year because of a lack of gearing.
Gearing gives the fund leverage, and if used well, can give investment trusts a competitive edge over their open-ended rivals, as it gives them the ability to stride ahead and achieve bigger returns in a rising market. But in the event of a market correction, losses are magnified and investors feel the pain stronger.
Given the current market climate, they believe it’s just too risky a strategy to adopt.
He says the market has been littered with significant risks, but since the tail-end of last year the team are more confident that nothing "very nasty" was on the cards. "But we are not out of the woods yet," he warns.
