By James Thorneley The Baillie Gifford-managed Monks Trust is to reduce its UK equity exposure over ...
By James Thorneley
The Baillie Gifford-managed Monks Trust is to reduce its UK equity exposure over the next two months.
The international generalist portfolio run by Richard Burns has some 32% exposure to this particular market but he is aiming to bring it down to 30% by the end of April with the longer-term plan being to have a 25% weighting.
This decision has been prompted by his view that the UK has only a limited supply of fast-growing technology companies, an area which he favours. Some 30% of Monks is exposed to telecom or technology stocks.
As the £619.6m trust's weighting in the UK is reduced, its exposure to Europe, Far East and the US will be increased. Burns said he believed the balance of Asian growth had now turned in favour of the new industries of technology and telecoms and away from the more traditional stocks such as HSBC.
Since taking over the running of the trust from Douglas McDougall in April 1999 Burns has also reduced portfolio exposure to bonds. McDougall was a more cautious investor and ran the trust with a high level of liquidity with net liquid assets and bonds comprising approximately 25% of the portfolio. Now equity exposure stands at 94%. Liquidity was significantly reduced last month, a by-product of share repurchase activity.
A total of 3.225 million shares were bought back in January and a further 980,000 shares have already been repurchased during February. In addition to the small amount of repurchases which took place last year, the share buy-backs have produced an NAV uplift of £13.8m, equivalent to 21.5p per share. To date Monks has bought in 9.2% of its share capital for cancellation.
The restructuring of the portfolio, the bias towards technology and telecom stocks and the share repurchases have all contributed to a turnaround in the performance of the trust. Over three months its NAV has risen by 15.3% compared to a rise in the trust's composite benchmark, 20% FTSE All-Share and 80% FT/S&P AWI World ex UK, of 7.7%. In contrast over three years the NAV has risen by 60.4% while the trust's composite benchmark rose by 66.1%.
Carolyn Coke, investment trust analyst at Deutsche Bank, said that with the upturn in performance the trust should now be regarded as a buy. She added: "The portfolio is overweight technology and telecoms, which has borne fruit in the strong performance figures. I believe that investors should now take advantage of the wide discount to build exposure to this rejuvenated trust."
As at close of business last Wednesday the trust was trading on a discount to NAV of 16.8%. The previous week the discount was over 20% representing a 10-year low. The trust is currently geared through two £40m debentures. As a result of the gearing the NAV of the portfolio is 1.8% higher than it would be otherwise. If the debt had to be paid off now it would reduce NAV per share by 25.1p.
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