Investment managers are Baillie Gifford, the investment house behind Monks investment trust, are ‘unashamed optimists’.
‘In a world where headlines are prevailing negative, where negative headlines sell newspapers and indeed a part of your brain called the amygdala drives your attention towards those headlines, we look to be a little bit different and be optimistic about the future,’ said Jon Henry, client service manager of Monks, which has been going for 90 years.
‘To give you some examples of why we’re optimistic, human life span has over doubled in that time from 31 to 67 years, global literacy rates have gone from 25% to about 80% and your chances of dying as a result of disease, famine or war have never been lower.’
Speaking at a Sub35 event at Pewterers’ Hall, Barbican, Henry said Baillie Gifford’s fund managers are ‘actual’ investors – long-term providers of risk capital to companies to perform value-creating activities.
‘We are looking to allocate capital to companies who are most likely to do that around the world today.’
Drivers of growth
In running Monks, manager Charles Plowden and his two deputies, Malcolm MacColl and Spencer Adair, harness ‘many different drivers of growth’.
‘We embrace different types of growth and think growth comes in many forms,’ said Henry. ‘We’re looking for companies that bring different exposure, uncorrelated exposure to the portfolio, over time.’
An example, and recent addition to the portfolio, is Service Corp International, a US-based crematoria business.
‘A growth portfolio investing in a crematoria business doesn’t sound particularly congruous, but we think there is an attractive case for growth in that company,’ he said. ‘It’s uncorrelated to the rest of the portfolio so has been added to the fund. That gives you an idea that we are looking at lots of different areas for where growth may come from.’
The managers categorise holdings into one of four growth profiles – stalwart (established companies with large consumer bases), rapid (early stage businesses with rapid growth opportunities), cyclical (subject to macroeconomic and capital cycles with significant structural growth prospects) and latent (where a company-specific catalyst should drive above average earnings growth.
The portfolio is well diversified not only by region and sector, but by these growth types. It has around 26% in stalwarts, 43% in rapid growth, 17% in cyclical and 13% in latent growth stocks*.
Henry gave Chegg, a fast-growth online education platform in the US, as an example of the second and insurer Prudential as an example of the first.
‘The structural growth for us comes from the Asian business where about 65% of new business profits come from, but the large and entrenched consumer base [means that] Prudential is able to gradually increase prices year-on-year, which is very powerful, as generally people don’t churn their insurance policies particularly often.’