Monks extends record of outperformance since strategy change – Over the year to 30 April 2018, Monks Investment Trust’s net asset value total return was 15.8% compared to a total return of 7.5% for the World Index (in sterling terms). The share price total return for the same period was 20.4%. The chairman says that Amazon, NVIDIA and Alibaba were the most notable positive contributors to absolute returns in a period during which 14 holdings appreciated by more than 50% in sterling terms. A single final dividend of 1.40p is being recommended, compared to 1.25p last year. This is the minimum required to maintain the company’s investment trust status.
Since the change in approach in March 2015, the NAV total return at fair value has been 57.9% and the share price total return 84.4% against the comparative index at 40.3%
Extract from the manager’s report
“Amongst the most significant contributors to returns in the year under review were NVIDIA, Alibaba, Naspers, GrubHub, Autohome, MasterCard, Fiat Chrysler, AIA and Abiomed, each of which grew earnings by at least a third in calendar 2017. These companies represent a broad spectrum of industry exposures from insurance through automobiles and credit cards to sophisticated semi-conductors, demonstrating the range of opportunities available to global stockpickers. The single largest contributor to returns for the year (and since March 2015) was Amazon, which grew its reported earnings 26% in 2017. This rate was depressed, as is usual with this company, by its willingness to invest heavily in order to maximise future growth.
During the year the share price of fourteen holdings rose by more than 50% in sterling terms. Of these we would categorise eleven as ‘online platforms’. Often these companies are using the internet to deliver traditional services in a way that disrupts incumbents, just as Amazon has done in retail. These companies tend to have a number of common features: large market opportunities, asset-light business models, visionary leaders and the enticing possibility of entrenched leadership positions. When one sees a winning ‘online platform’ emerge, it seems simple but the competitive environment is intense; Warren Buffet said recently of Amazon’s doughty leader ‘I think what Jeff Bezos has done is something close to a miracle’. Another platform that seems to be emerging as a winner is GrubHub, the American online food ordering and delivery company. We have owned this stock since late 2015 when it was one of a number of competitors in a US$200bn market. Soon after our purchase the company announced a significant investment in delivery technology and physical infrastructure to aid its service and the market groaned as this placed its fast-paced asset-light model under pressure. We applauded because in the long term it gave GrubHub a better chance of success through a definable edge – the speed of delivery and the quality of the food when it arrived. During the year the shares more than doubled as it continued to consolidate its position through acquisitions and announced it had won a contract to provide delivery services for all KFC and Taco Bell restaurants in the US. GrubHub now has access to over 80,000 restaurants in the US; it is four times larger than the next biggest online food delivery platform.
Growth in data and the digital world, and especially in cloud and mobile applications, has clearly benefited our investments in the semi-conductor industry where we own chip designers (NVIDIA, Infineon, Rohm and Advanced Micro Devices), manufacturers (Samsung Electronics and TSMC) and the makers of testing equipment (Advantest and Teradyne). These companies are all benefiting from very strong volume demand, together with improved pricing power as a result of historic industry consolidation. However, we are wary that in this cyclical industry such boom conditions may not last forever, especially with the Chinese investing heavily to build up their own capabilities and we have begun to bank some profits. China is successfully switching its economic focus from low-cost manufacturing to consumption and services. The government is actively promoting the development of domestic technology champions. Chinese consumer internet companies Alibaba, Autohome and 58.com all find themselves at the confluence of these positive developments. All performed strongly and counted amongst the leading contributors to performance for the year.”
MNKS : Monks extends record of outperformance since strategy change