US retail giant Amazon and Chinese online marketplace Alibaba were among the star performers for the £1.7 billion Monks Investment Trust as the Baillie Gifford-run fund trounced its benchmark during the year to April.
NVIDIA, the US company which designs graphics processing units for the likes of the gaming market, was another significant contributor as Edinburgh-based Monks posted a 15.8 per cent total return on net asset value for the 12 months to April 30.
Its benchmark, the FTSE World Index (in sterling terms), recorded a total return of 7.5%.
Monks highlighted the contribution of its diverse investments in the global semiconductor industry. These investments also include Taiwanese semiconductor manufacturing giant TSMC.
Monks’ managers, Charles Plowden, Spencer Adair and Malcolm MacColl, say in their report on the accounts: “Growth in data and the digital world, and especially in cloud and mobile applications, has clearly benefited our investments in the semiconductor 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, they add: “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.”
North American companies accounted for 44.7% of Monks’ total assets at April 30. This was down from 47.1% a year earlier. Monks had significant exposure to Continental Europe, which made up 17% of total assets. Investments in UK companies comprised only 5.3% of Monks’ total assets at April 30, down from 6.3% a year earlier. The trust’s exposure to Japanese companies increased from 6.3% to 8.5% of total assets during the year to April.
Emerging markets investments accounted for 19.4% of total assets at April 30, up from 18.9% a year earlier.
Declaring China is “successfully switching its economic focus from low-cost manufacturing to consumption and services”, Monks’ managers cite the contribution of online company Autohome and classified advertising website 58.com as well as Alibaba.
The managers declare: “The (Chinese) 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.”
Monks’ managers note online retail giant Amazon was the single-largest contributor to the trust’s returns for the year, and since March 2015.
They observe Amazon increased its reported earnings by 26% in 2017, adding: “This rate was depressed, as is usual with this company, by its willingness to invest heavily in order to maximise future growth.”
American online food ordering and delivery company GrubHub was another significant contributor to Monks’ overall performance in the year to April.
Read More: Ian McConnell: Scottish Mortgage board sends right messages
Monks’ managers declare GrubHub now has access to more than 80,000 restaurants in the US, and is four times larger than the next-biggest online food-delivery platform.
The managers note that, during the year to April, the share prices of 14 of the trust's holdings rose by more than 50% in sterling terms.
They say: “Of these, we would categorise 11 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.”
Read More: Rise of China flagged by Scottish Mortgage
The managers add: “When one sees a winning ‘online platform’ emerge, it seems simple but the competitive environment is intense; Warren Buffett said recently of Amazon’s doughty leader ‘I think what Jeff Bezos has done is something close to a miracle’.”
Monks is recommending a single final dividend of 1.4p-a-share. It highlighted the fact that its priority was capital growth.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here