Monks Investment Trust PLC (LON:MNKS) has announced its results for the six months to 31 October 2023.
Chairman’s statement
Performance
During the first half of the financial year, the Company produced a net asset value (NAV) total return of -3.3% compared to +2.1% for the comparative index (FTSE World in sterling). The share price total return was -7.3%, as the discount widened from 8.7% to 11.6%. The investment trust sector is trading at discounts last seen during the financial crisis.
This is disappointing. Beyond the seven mega-cap stocks in the US, growth stocks have been out of favour during a period of rising interest rates. We believe that in the long run growth stocks will continue to deliver better investment returns, particularly as technology continues to transform economies in sometimes unpredictable ways. We also share the investment managers’ optimism that the period of sharply rising rates is now behind us. Some of the underperformance, however, has been driven by specific stock selection, and commentary on the largest detractors from performance over the period is included in the Managers’ report.
Discount management
Apart from challenging the manager, an essential role of an investment company board is to determine the company’s policy in respect of discount management.
Monks Investment Trust has bought back approximately £300m of its own stock since the beginning of last year, when the Company’s shares moved from a premium to a discount. Repurchasing shares provides NAV accretion, reduces share price volatility and reassures shareholders and potential investors that the Board is alive to the question of discount management. The Board therefore intends to continue to buy back while the Company’s shares trade at a substantial discount to NAV. It continues to evaluate the range of alternative options at its disposal to seek to address the discount.
Gearing
An advantage of the investment trust structure is that the Company can deploy borrowing to enhance returns in the long run. In 2020, the Board took advantage of low interest rates to issue debt to an insurer to provide structural gearing, securing £100m of borrowing with a maturity of 30 years at an interest rate of 1.8%. The Board believes that it is beneficial for the Company to have flexibility in its capital structure, so not all of the Company’s borrowing is structural. The Company also has a revolving debt facility of £150m at a floating rate of interest, the cost of which has risen with market rates. This facility expires in November 2024. The Board is considering potential options to replace this facility and will update shareholders in due course.
The Board
As previously reported, Jeremy Tigue has indicated his intention not to offer himself for re-election at the AGM in September 2024 and, accordingly, Belinda Richards has succeeded him as Senior Independent Director (‘SID’) in order to oversee the necessary recruitment and succession planning. A recruitment process is under way to add further members to the Board. We expect to be in a position to announce the new appointments before the end of the Company’s current financial year.
Outlook
Monks Investment Trust has a well-diversified portfolio of growth stocks, with less than 4% underlying exposure to unquoted companies. The Board believes that the Company’s diversified approach offers investors exposure to a wide range of growth opportunities that are likely to drive returns in the years ahead.
Karl Sternberg
Chairman
7 December 2023
