A Pug Called Sherbet

When looking at shares to buy the focus here has been to a large extent on dividends, as many of us have to live on the divis. Today, let’s look at a company that yields only about 0.8% but aims to deliver capital growth.

Monks investment trust was founded in 1929 and has assets of more than £1 billion. Its performance over the past five and ten years has been dreadful. In the last ten years the Monks share price has gone up 85.5% (hurrah) while the FTSE World Index went up 124.9% so less of the cheering. Over five years the picture is similar; Monks up 30.9%, the index up 63.3 %. It looks like one of those grand old firms that has gone completely off the rails and is best avoided, doesn’t it? A real dog.

Well no, actually. Monks is managed by Baillie Gifford and they realised that their underperformance was slowly killing the company. In April 2015 they appointed a new manager, Charles Plowden, with a brief to reconstruct Monks’ portfolio. He calls his investment approach “global alpha”. Here is what he said to This is Money last year.

‘The trust will be an explicit growth portfolio investing in growth companies. Everything will be looked at through a growth prism. The world is awash with growth opportunities.’

‘Global alpha’ is an approach Plowden initiated at Baillie Gifford ten years ago. Some £20 billion – a sixth of the assets controlled by Baillie Gifford – is managed this way for institutional rather than private investors.

So now a lowly retail investor can buy into Plowden’s expertise. As with most investment trusts the fees are low – just under 0.6%. He has spent the past year jettisoning the portfolio he inherited and now less than 2% of that legacy remains. He has also made some modest ( about 10% of the Net Asset Value) borrowings to give the trust some gearing. Best of all the shares are trading at a discount of 10.6% to NAV.

It seems to me that this is the moment for an investor wanting capital growth and minimal income to step aboard and hope that Thunderbirds Are Go. It’s what I have done.

(Recondite piece of knowledge that will win a pub quiz: Lady Penelope has a pug called Sherbet.)