‘Being cautious in rising markets isn’t our style’

It is not often that an investment firm openly admits that a fund hasn’t been performing as it was meant to and makes a radical change, but that is exactly what has happened with the £1.6bn Monks investment trust. The 88-year-old global trust was taken over by a team led by Baillie Gifford veteran Charles Plowden in 2015 after a long period of failing to beat the market.

Since then performance has been impressive: returns have been nearly twice the gain of the FTSE World index. The trust aims to be a core holding for investors. It invests in around 110 companies worldwide.

We spoke to Mr Plowden about Monks’ turnaround, and why he reckons Prudential, the insurer, is worth £36bn more than the market thinks it is. style. The trust is for people who want to make money, not protect it.

When my team took over we sold around 50pc of the holdings over four weeks. It cost only 0.5pc of the fund value to do so. We also started to borrow and worked on finding the right shareholders – long-term owners rather than those just waiting for the discount to shrink.

We aim for the top quarter of growth companies, firms that can double their share price over five years and grow at 10pc a year, rather than the very top of the pyramid. We take ideas from across the company. So if a colleague from another team can convince us about a company, we’ll buy it.

The trust is a mixture of rapid growth stocks, durable firms that offer long-term growth, cyclical businesses and out of favour companies with a specific catalyst to grow earnings.

It can hopefully perform in a wide range of markets, or when a

CV: Charles Plowden

Charles Plowden is one of the two joint senior partners at Baillie Gifford. He heads the “global alpha” strategy, which is used for large amounts of institutional money, in addition to retail funds. He has consistently beaten his peers. single sector such as technology struggles. We start with averagesized positions and allow our biggest holdings to become that way through share price growth, rather than backing a small number of stocks in a big way. The fee has been cut this year and the bigger the fund gets the lower it will go.

Charles Plowden speaks to James Connington about turning around the Monks Investment Trust

We are often told that markets are too expensive and that everyone should be scared, but we don’t see it that way. America’s S&P 500 index is very close to where you would expect on the basis of its 90-year trend of making 7pc a year. Europe, Japan and emerging markets are well below trend. Even if a market looks expensive, it doesn’t mean everything in it is. In terms of geography, there are no set weightings. We were becoming more enthusiastic about America, as we developed a thesis three years ago that an industrial renaissance was overdue. When Donald Trump got elected that was a key policy, which gave a huge boost to the theme, but his election wasn’t why we in invested. There has been no p policy follow-through, so we we’ve been reducing some of our American investments, as price prices are high and the prospects are aren’t really improving. That mone money has mostly gone into Europe and e emerging markets. We hold th three or four UK stocks, b but none is domes domestically focused focused. The best is Amazon. The strategy Monks is now a part of has made 50 times its money in Amazon since we first invested in 2008.

The ones I regret are where we departed from our process. There were some investments in 2007 where we let our approach drift, and we bought potash and tar sands stocks. I’ve lost 99pc on a stock that was a legitimate but unlucky investment before, which doesn’t embarrass me.

Investing in marginal commodities at the height of a bubble does.

All of my pay derives from being a partner in Baillie Gifford – none comes direct from the fund itself. The bulk of my investment is in our own strategy, and since taking over Monks all of our buying as a team has been into Monks, including last week. I’ve been here for 34 years, but I did first look at political risk insurance. I love the Pru, which very few other people do. The firm’s chief motivation has been to change perceptions. The latest effort has been to close large parts of its UK business and focus on Asia. It wants to be seen as a high-growth Asian insurer.

We own both Prudential and Asian rival AIA. They’re very similar, in terms of products and margins, particularly because AIA has been run by exPrudential management. AIA does have an advantage in mainland China, thanks to more extensive licences.

The two nearly merged in 2010. Back then, Prudential was underselling itself and it still remains undervalued compared with its Asian peers. Its current price encompasses no future growth. I can justify today’s valuation on the basis of business it has already written. If you value Prudential’s Asian business on the same basis as AIA’s, you can add £36bn to its current £47bn valuation. I don’t know how that comes about, though, or what is stopping it happening. The degree of undervaluation is slowly reducing, but there are still very few large British stocks so clearly undervalued. Most shareholders will be British investors and institutions. Everyone thinks it’s boring, but that’s the point. There’s nothing special about its business model, it’s just a life company. It will deliver double-digit growth over the next five, 10, 20 years, and it’s rated as though it won’t grow at all. It’s really all about Asia, which is 30pc of the business but 80pc of the value.

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