UK Edition
Questor: last year Monks was the clear pick over Scottish Mortgage; now it’s a much tighter call
Today we will briefly revisit one of the first trusts tipped by this column: Monks, which we recommended as a buy in October last year.
As we pointed out in an update in May, the trust’s significant discount at the time of the tip has since disappeared and the shares now trade at a small premium.
What is intriguing is how the elimination of the discount has affected the performance of Monks relative to its larger and better known stablemate Scottish Mortgage, also managed by the Edinburgh-based partnership of Baillie Gifford.
If we look just at the underlying portfolios of the two trusts, Scottish Mortgage has outperformed Monks since our tip. Monks’ net asset value (NAV) then was 598.3p a share and now stands at 717.6p, according to Morningstar estimates, a gain of 19.9pc. Scottish Mortgage’s NAV, meanwhile, has risen from 331.1p in October to 419.4p – an increase of 26.7pc.
But in share price terms, Monks has outperformed: its shares have risen by 33.7pc since our tip, while Scottish Mortgage’s share price has risen by 28.1pc over the same period.
This is because Scottish Mortgage was already trading at a premium (of about 0.5pc) when we tipped Monks last year and today that premium is only a little higher at 1.5pc. Monks, on the other hand, has experienced a more drastic change from a 9pc discount to a small premium of about 0.06pc.
In other words, investors in Monks have enjoyed a major boost to the share price from improving sentiment while Scottish Mortgage shareholders have not.
We hold both trusts in high regard – indeed, they are run on a similar basis and have many holdings in common; the difference is that Monks is more diversified and commits less money to its largest holdings. Today’s analysis, however, shows the value of considering the discount in addition to the quality of a trust’s portfolio and management.
Now that the two trusts are trading at broadly similar discounts, what should investors do? We rate Monks a hold for its clear strengths, although more adventurous savers may want to switch to Scottish Mortgage now that the discount gap has gone.
Questor says: hold
Ticker: MNKS
Share price at close: 718p
Update: P2P Global Investments
Questor tipped an unusual trust in February in the form of P2P Global Investments, an £850m fund comprising thousands of loans made to individuals and small businesses.
Its name stems from its “peer-to-peer” model: the loans are originated on a range of peer-to-peer websites where borrowers and lenders are connected directly.
These P2P platforms, the best known of which include Zopa and Funding Circle, are already popular with individual savers who invest directly by lending to other individuals or small businesses.
The trust, which has a market value of £700m and currently trades at a discount of 14pc to the estimated £807m value of its loan books, seeks to do the same on a large scale – giving its shareholders the same benefit of income but additional global diversification.
We tipped the fund at 782p on Feb 2. It closed yesterday at 855p.
Zopa, worryingly, has written to direct investors in recent days warning of an increase in borrower defaults. This is likely to mean a “lower targeted return” for future loans as the business targets better risk. It will also mean “slightly higher losses” for some existing loans.
Zopa is only one of many platforms to which P2PGI has exposure, although it accounts for about 35pc of new lending for the trust. The trust has been pulling back from US consumer lending and increasing UK exposure (21pc). Zopa’s note highlights how opportunities from lending to creditworthy borrowers are diminishing fast. Hold for income.
Investment trust news
Schroder AsiaPacific, tipped here in May, has cut its management fee. A charge of 0.9pc applies to the first £300m of assets, falling to 0.8pc between £300m and £600m and 0.75pc thereafter. Based on the net asset value on March 31, the change would reduce the annual fee from £6.4m to £6.2m. India Capital Growth, recommended in March, is seeking to move its listing from Aim to the main market.