Monks
by Doug Brodie
/1. A tale of two trusts.
Monks
I’m sure there is an ecclesiastical connection somewhere, however in summary: Monks Investment Trust is one of the oldest investment trusts in the UK, with a history dating back to 1929. It was established to provide investors with a diversified portfolio of global equities, aiming for long-term capital growth. The trust is managed by Baillie Gifford, a well-known Edinburgh-based investment management firm.
Key Historical Points:
Foundation and Early Years (1929 - 1950s): The trust was launched in 1929, right before the Great Depression, and was initially managed with a focus on UK equities. Over time, it expanded its geographical reach to include international investments, reflecting global opportunities.
Post-War Expansion (1950s - 1980s): During the post-war period, Monks Investment Trust further diversified its holdings, incorporating a broader range of sectors and geographies. This diversification was aimed at reducing risk and capitalizing on the economic growth in various parts of the world.
Modernization and Global Focus (1990s - Present): In the 1990s, the trust underwent significant changes under Baillie Gifford's management, shifting towards a more aggressive growth strategy. It now focuses on long-term growth opportunities globally, with a particular emphasis on companies that have strong potential for earnings growth.
Investment Strategy: Monks Investment Trust's strategy is characterized by its global and diversified approach, with a focus on innovative and high-growth companies. The trust has holdings in sectors like technology, healthcare, and consumer goods, aiming to invest in companies that can deliver substantial returns over the long term.
Performance and Recognition: Over the years, Monks Investment Trust has been recognized for its strong performance, particularly in recent decades under Baillie Gifford's management. The trust's ability to identify and invest in growth companies globally has contributed to its solid track record.
The key fact for any investor is plumb centre on the trust’s web page:
It’s very big, the total assets are £2.68 billion, and 80% of its holdings are active shares. We have never recommended Monks for any client and that’s simply because its yield is (currently) 0.18%. Like an Allen key or a torx wrench, it’s a competent investment but works best doing what it’s designed for, and from their own mouths that’s ‘long term capital growth’. We can further see this in its accounts, where it states that its income in 2023 was £30m, and that equates to roughly 1.25% of capital so it’s clearly not competing with strong income trusts – like Merchants trust.
Admittedly it wasn’t around in the Middle Ages as the picture of merchants above displays, however, Merchants Investment Trust is one of the oldest investment trusts in the UK, being established in 1889. It has a long history of providing income and growth to its shareholders by investing primarily in large-cap UK companies. The trust is well-known for its focus on delivering a high and sustainable level of income, making it a popular choice for income-focused investors.
Key Historical Points:
Establishment and Early Years (1889 - 1900s):
The trust was founded in 1889 and initially focused on investing in a broad range of assets, including fixed-income securities and equities. It aimed to provide investors with a diversified portfolio to generate steady returns.
Interwar and Post-War Period (1914 - 1950s):
Throughout the turbulent times of the two World Wars and the Great Depression, the trust managed to maintain its commitment to income generation. The focus during this period was on preserving capital and maintaining dividend payments, despite economic challenges.
Mid-20th Century Shifts (1950s - 1980s):
In the post-war period, the trust shifted its focus more towards equities, particularly in the UK market, as the British economy recovered and grew. It continued to prioritize income, with an emphasis on companies that could provide reliable dividends.
Modern Era and Strategic Focus (1990s - Present):
In recent decades, the Merchants Investment Trust has focused predominantly on large-cap UK stocks, with a strategic emphasis on generating high income for its shareholders. It has a well-established track record of dividend payments and is considered a reliable option for investors seeking income.
The trust is currently managed by Allianz Global Investors, which has maintained its commitment to the trust's original mandate while adapting to changing market conditions and investment opportunities.
Current Strategy and Performance:
The trust’s investment strategy is centred around selecting undervalued, high-yielding stocks that can provide a stable income and potential for capital growth. Its portfolio is diversified across various sectors, with a significant weighting towards financials, energy, and consumer goods.
Merchants Investment Trust is known for its long-standing dividend history and has often been highlighted for its efforts to maintain or increase dividends even during challenging market conditions.
The trust's commitment to delivering income through thick and thin has made it a cornerstone investment for those looking for steady returns in the form of dividends. We use it extensively as an element in most client portfolios – its current yield is 4.86%, it has increased its dividend every year since the ECHR banned corporate punishment by school teachers, a £100k investment in 1986 has since yielded £505,000 in dividend income. At a market cap of £870m, its income of £40.5m is 5.68% of its cap.
/2. Hargreaves Lansdown vs Chancery Lane
The eponymous Peter Hargreaves wrote the story of the firm’s founding called In for a Penny. Originally a discount broker, the firm was started to sell unit trusts, and despite Peter’s recent protestations, it was built on commissions. Quarterly mailshots to 50,000 people produced healthy investments into Prudential’s With Profits bonds etc. Around twenty years ago they switched their business model to levying an annual fee on client accounts and they really did steal a march on the rest of the industry. The two founders retired both as billionaires, their wealth coming from the sale and admin of investments to people who want a supermarket style of investment offering. HL didn’t quite advise their customers, however, they did pre-select investment funds which were published in a ‘top funds’ list and guess what? Their customers followed those implicit recommendations, which is how the Woodford debacle was created.
The difference between HL and Chancery Lane is the same as the difference between Tesco and Loch Fyne restaurants – you can get plaice from both, Tesco is going to be significantly cheaper but you’re not getting the same ‘product’ so the price is different. Complaining to your Loch Fyne wait staff that the fish is cheaper in Tesco would be daft. Chancery Lane is Loch Fyne – we research the products on the market so that our clients don’t need to; in fish terms, we buy at market at 6 am having read the market reports, we transport and store the fish here, prep on demand per each individual client, do the cooking, the serving then the washing up, alongside paying for the premises to be available to clients and ensuring there is always someone available 7/7 by phone, email or in person. Over and above all that, we assume absolute responsibility for the advice we give – that’s why we never recommended any Woodford funds nor did we use Scottish Mortgage for income portfolios.
The well burnished phrase of ‘price is what you pay, value is what you get’ is embedded in our company; many people are quite happy self-selecting investments on HL’s platform, and that has certainly proved very profitable for Messrs Hargreaves and Lansdown. You won’t see an advisory business with the same levels of profit margin because the costs are significantly higher. For example, in the first year with a new client we calculate that on average we spend between 40 and 60 hours on that client – of that, around 60% is pure administration, 15% is pure research and 25% is application of that research through the one to one advice we give.
Many people don’t know that:
Commission in retail investment products (including pensions) was banned outright at the end of 2012.
A retail client is deemed to have no prior investment knowledge and therefore it is the entire responsibility of the adviser to ensure that the outcome is correct for each client.
All retail financial advice is insured via professional indemnity insurance, or ‘own assets’ if a large firm.
The statute of limitation does not apply to final salary pension transfer advice – the liability for ‘best advice’ on that arrangement lasts until the death of the client.
Many household name providers like Prudential and St James Place have more than fifteen working days as their standard response times (that’s three working weeks – what we internally refer to as either a technology problem or a ‘we don’t give a damn’ problem).
Every element of the advice given must be recorded and retained – people think that we are regulated by the FCA, however, complaint adjudications are done by FOS (the Financial Ombudsman) whose adjudicators are not required to be trained or qualified to the level of an adviser (so it’s a requirement to be qualified to give advice, but not to assess if that advice is correct).
FOS: Some of our adjudicators have a legal background – either as law graduates or as fully-fledged solicitors or barristers.
Over and above operating as regulated financial planners, we are income specialists, and as we know, income delivery is binary – it’s a yes or no, it’s either there or it’s not. Our clients have bills to pay and they need to be assured they will have the right income at the right time – and they need that to deal with inflation, and to be delivered for life. That’s what we do, and we’re good at it.
What we charge to cover our costs is very straightforward: 0.75% initial and 1% per annum. Excessive profits would stick out like a sore thumb, so if there’s no excess financial fat that’s because that’s what the service costs.
As the logo in the original Hard Rock Café on Hyde Park Corner says, ‘love all, serve all’ 😊.