After Monks Investment Trust PLC (LSE:MNKS) significantly reduced its portfolio exposure to what it calls ‘rapid growth’ companies to reflect the difficult backdrop as valuations fell, broker Stifel said it looked a good investment for those who want access to growth companies but with less exposure to unquoted startups.
Manager Baillie Gifford has cut the share of investment in these companies from 40% of the portfolio to 30%.
The proportion given over to unlisted companies was also cut, along with exposure to emerging markets stocks and financials.
Overall, net asset value (NAV) total return, with borrowings calculated at fair value, fell 1.6% over the year, while the share price total return declined 7.0% compared to the FTSE World Index up 3.2%.
The managers say in the vast majority of cases, they are confident that recent share price weakness does not reflect underlying progress being made by the companies owned in the portfolio.
Exits have been made from Peloton Interactive, Twilio and Carvana due to operational reasons and three Chinese stocks due to the expected regulatory environment, including Tencent Music Entertainment.
“In a world where inflation and interest rates are markedly higher than in the preceding decade and the operating environment is more challenging for companies, many investors equate growth with fragility. We do not share this perspective,” the managers said.
“In contrast, we believe that the imposition of greater discipline by the market may be very helpful in separating those companies with profitable long-term business models from those which were simply the beneficiaries of a benign funding environment. This underpins our confidence in the ability of Monks' portfolio to deliver attractive long-term returns from here.”
Analysts at broker Stifel said they think the flattish return is “reasonable” and with the rebalanced portfolio believe “this remains a good vehicle to use to access growth companies, but with lower exposure to unquoteds at circa 4% of the portfolio compared with closer to 30% at Scottish Mortgage”.
The shares, up in early trading on Tuesday but flat by midday at 995p, are trading on around a 12% discount and Stifel retained a ‘neutral’ recommendation.