Baillie Gifford’s Monks plans to combine forces with UK trust

Monks, which invests globally and is regarded as a less aggressive version of Scottish Mortgage, would gain greater UK exposure. 

Monks (LSE:MNKS), managed by Baillie Gifford, is proposing it merge with the Independent Investment Trust (LSE:IIT), subject to approval from both trust’s shareholders.

Monks, which invests globally and is regarded as a less aggressive version of Scottish Mortgage (LSE:SMT), would see up to £260 million added to its assets, which currently stand at £2.75 billion.

Independent Investment Trust invests in UK shares, and is managed by Max Ward, who earlier in his career worked for Baillie Gifford. He was the fund manager of Scottish Mortgage from 1989 to 2000. In addition, Independent's chair Douglas McDougall was a senior partner at Baillie Gifford from 1989 to 1999. 

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Ward, who has managed Independent Investment Trust since October 2000, recently informed the board of his intention to retire. This led the board to search for a replacement, and it has proposed to merge the trust with Monks.

If given the green light by shareholders, Independent’s board points out that this will result in an increase in scale, which will improve liquidity. It also highlighted that its shareholders will “maintain exposure to similar objectives, but with a more diverse portfolio”.

Monks’ board said its shareholders will benefit from a “ready-assembled collection of UK growth stocks, which the managers have assessed for potential upside and portfolio fit”. Monks currently has 7.3% of its assets in UK shares.  

If approved, Independent’s shareholders will also have the option of selling all or part of their holding “at a level near to liquidation value should they so wish”.

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A circular will be sent to shareholders in both trusts in September, with the vote on the proposed merger expected to take place in October.

Both trusts focus on finding high-growth shares – from the UK market in the case of Independent, and globally for Monks.

Independent Investment Trust is much more concentrated than Monks. It holds 35 shares, with its top 10 positions accounting for 49% of the portfolio. Whereas Monks has around 100 holdings, with 28.3% of the portfolio top 10 holdings.

Spencer Adair and Malcolm MacColl are the lead and deputy fund managers of Monks. Former lead manager Charles Plowden retired last April. Adair and MacColl have been managing the trust since March 2015. In summarising the investment approach, MacColl says Monks is “drawn to businesses addressing a particular ‘crisis’ in a novel manner, which can help to reduce costs and/or produce a radically improved quality of service”.

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Independent Investment Trust has a stellar track record under Ward. Since October 2000, the trust’s share price total return stands at 520.2% versus 204.4% for the average UK All Companies trust, figures from FE Fundinfo show.

However, over the past five years the trust has notably lagged the sector average, down 23.1% against a gain of 6.2%.

Since the current Monks managers took over on 27 March 2015, the trust has returned 148.9% versus 91.9% for the average global trust. However, its shorter-term performance has lagged. Over one year Monks has lost 26.4%, whereas the sector average is down 13.2%. The trust’s investment style has been out of favour due to the backdrop of high inflation and interest rate rises. Both have the effect of devaluing the future earnings of growth companies.