Monks Investment Trust has published results covering the 12 months ended 30 April 2025. The trust was doing reasonably well ahead of ‘Liberation Day’ in early April. However, it was caught up in the resulting sell off and finished the year with an NAV return of just 0.1%. The discount widened from 8.5% to 10.1%, which meant that the return to shareholders was -1.5%. Neither return compares well with a 5.3% return for the World Index.
In an effort to tackle the discount, the company bought back 26.5m shares, at a cost of £321.1m. Since January 2022, it has bought back 65.5m shares at a cost of £727.1m; representing 27.7% of the issued share capital as at 31 December 2021. The board is aiming to keep the discount in single digits in normal market conditions.
Karl Sternberg, the chairman who is retiring at this year’s AGM, observes that the trust has now underperformed over five years. He attributes part of that to the concentration of returns within the benchmark [the Magnificent Seven effect]. Monks is designed to have a diversified portfolio and that has worked against it. Nevertheless, the board is reviewing the situation.
Extract from the chairman’s statement
Whilst our managers have owned most of the companies that have driven stock market returns in recent years, these companies have represented a smaller proportion of Monks’ portfolio than their index weightings. This is now the longest sequential period in which the S&P500 has beaten its equally-weighted version. This has made the index difficult to beat. Nevertheless, our team has made mistakes, as every team makes mistakes. I have referred in the past to the importance of refocusing on valuations; and there have (inevitably) been stock-specific errors. The board’s role is to be constructively critical, to probe more deeply when things are going well, and to be more supportive during more difficult periods.
At an AGM some years ago, a shareholder asked what the appropriate assessment period for a manager should be before reviewing them more formally. I responded that 5-year periods would be appropriate. The board reassesses the manager every year, in line with AIC guidelines. But the longer the period of assessment, the greater the information content. Given that we are behind the index over 5 years, you can expect the board to be considering this issue in even greater detail. The longer period allows us to supplement the annual AIC checklist with consideration of the effect of personnel change, any process changes that have occurred during the period, and changing market dynamics.
We all share the view that there need to be a smaller number of very sizeable investment trusts in future, to reflect the changing shape of our ownership via wealth management platforms, advised, and self-administered. Monks needs to be fighting-fit as more mergers occur. I know that my colleagues will apply a great deal of effort to make sure that Monks should remain a core holding in the growth category and is in a position to be a consolidator.
Extract from the manager’s report
A cohort of our healthcare holdings was among the largest detractors from relative performance for the portfolio. President Trump’s healthcare appointments and their combined pronouncements have impacted short-term sentiment in healthcare. Against this backdrop, Elevance Health and Novo Nordisk have both suffered share price falls following disappointing operational results. Elevance is the second-largest US health insurer. We believe a growing need for health insurance coverage (as the population ages and treatment becomes more expensive) provides a structural tailwind for growth in the years ahead. The recent weakness in Elevance’s shares is a result of the number of government-supported Medicaid customers falling as eligibility criteria are tightened post-pandemic. This has increased the company’s medical loss ratio and weighed on margins, but we believe this is temporary. Elevance’s pricing power (it can reprice policies annually) should allow it to grow its margins again and deliver sustainable double‑digit earnings growth over the long term.
Novo Nordisk could become one of the scale providers of weight loss injections to a vast and undersupplied market. Its shares fell sharply in December following late-stage trial results from its latest drug, CagriSema. The results were market-leading, showing 22.5% average weight loss across the patient population, but this was lower than anticipated. We think that the market’s reaction to this is overdone. Today, just over 10 million people take obesity drugs globally (only 1% of the global obese population). As supply constraints ease, we expect this number to expand significantly. As a leader in the field of diabetes and metabolic disease, we expect Novo to continue to garner a significant share of the obesity market and believe the company has an underappreciated competitive advantage in manufacturing that is difficult and costly to replicate.
Elsewhere, Block, the peer-to-peer payment platform, saw its shares fall 25% following the management team’s guidance that profit growth will moderate over the next year. It continues to grow its services across both Square (payments terminal) and Cash App (consumer finance), which should build scale and increase its profitability over the long term.
In contrast to Elevance and Novo Nordisk, where we remain confident in the long-term outlook, we have sold our position in Moderna. Revenue from its Covid-19 vaccine has disappointed, whilst speed to market with its RSV (respiratory syncytial virus) vaccine was slow and allowed competitors to steal the lead. Though we continue to believe that they have a potentially exciting pipeline of drugs, our patience has been exhausted.
Most of the portfolio holdings are in good shape. Indeed, sticking within healthcare, Alnylam Pharmaceuticals (gene silencing) reached a significant milestone after positive results from its late-stage trial to treat a rare heart condition. This could multiply its addressable patient population tenfold. We took some profits on shareholders’ behalf after the share price rose by 80%, but we remain excited by the company’s potential to address even larger patient populations.
Top contributors in the year included emerging winners DoorDash (online food delivery) and Sea Limited (ecommerce, gaming and payments). These companies are emerging stronger in the face of a higher cost of capital, while weaker competitors fall by the wayside, and are entrenching their competitive edge over peers. For example, DoorDash has grown its market share in the US from 57% to nearly 70% over the past three years and continues to scale at pace (order numbers increased +18% to an astonishing 643 million per quarter). Excitingly, it is making impressive progress in grocery delivery and in new markets overseas. Indeed, the news of its recent purchase of Deliveroo in the UK is evidence of its growth ambitions.
Some of our largest positions have contributed strongly too, with Prosus (investment holding company) and Meta (advertising) among the most notable. Prosus – which has a 25% shareholding in Tencent, the Chinese internet giant – has seen its portfolio of internet assets deliver robust financial growth. Its recent results showed that its consolidated e-commerce operations delivered +16% revenue growth, and operating profitability 12 months earlier than targeted. Meanwhile, Meta continues to excel. AI investments have boosted advertising quality and targeting, increased user engagement and accelerated revenue growth (+19% year-on-year).
[QD comment, James Carthew: I have some sympathy for managers that have struggled to beat a benchmark that has been driven by just a handful of stocks. Monks’ commitment to diversification makes it harder to outperform in such an environment. However, my sense is that investors’ focus on one market and a few stocks is changing, and indeed, that Liberation Day and the Big Beautiful Bill may be the nails in the coffin of US dominance of equity market returns. Whether Monks flourishes in more normal markets remains to be seen.]
MNKS : Monks chairman reflects on another year of underperformance
