Monks’ musings: the benefits of being flexible

As with any investment, your capital is at risk.

The market served up a reminder of its capriciousness last quarter. Concerns over the impact of President Trump’s punitive tariff plans caused a sell-off in growing companies in February and March. This largely wiped out Monks’ strong performance over the previous 10 months. Monks’ share price rose 1.4 per cent over the year to the end of March, trailing the FTSE World Index, which delivered 4.8 per cent. Monks’ net asset value was flat over this period.

Unpredictable policymaking and market uncertainty are now likely to be a feature of markets over the medium term. Rather than react to the 24-hour news cycle or try to divine the future through reading macro tea leaves, we remain focused on company fundamentals and on taking advantage of volatility for Monks shareholders’ long-term benefit. We spent the quarter bringing in new ideas that widen our range of growth drivers and position Monks well for a changing world.

We believe the evolving geopolitical landscape and the emergence of artificial intelligence (AI) are two of the most important considerations for investors in the years ahead. Rather than reacting in haste, we believe this requires careful consideration and informed action to use it to our advantage. 

Long-term investing in a changing world

Understanding geopolitical change takes a multi-layered approach. It requires assessing how different scenarios influence Monks’ holdings and taking a view from diverse vantage points. Seen from Washington and Berlin, the world may appear to be deglobalising, but it doesn’t feel the same from Rio or Mumbai. Our working hypothesis is that US trade frictions will endure on a timeline that stretches beyond Donald Trump’s time in office, inevitably creating winners and losers.

We’ve already made selective reductions to Monks’ US exposure to reflect this thinking. US companies’ valuation premium to the rest of the world – the extra amount by which US share prices trade above those in other markets – is less sustainable in a more hostile geopolitical environment. We’ve also long since disposed of companies that require frictionless trade to grow, such as Adidas, Estée Lauder and Pernod Ricard. To complement this, we’re looking to lean into companies that:

•    are more insensitive to the political backdrop 
•    have flexible business models and adaptable management teams

Great examples of the former include companies that operate primarily in a domestic or regional market, such as Nubank, a Brazilian online bank, which was a new purchase this quarter. Asian ecommerce business Sea, the owner of Shopee, and UK housebuilder Bellway also qualify.

An example of the latter is Uber, another addition this quarter. It has proven its adaptability by successfully navigating regulatory frameworks for ride-hailing around the world.

Another area of relative insulation is infrastructure. Although these tariffs could hit US consumer spending power, they accelerate the need for a US infrastructure upgrade, on which any reshoring of manufacturing would rely. Our exposure to companies delivering everything from plastic pipes (Advanced Drainage Systems) to temporary site storage space (WillScot) may prove a helpful cluster of holdings in weathering a tariff storm.

Artificial intelligence beneficiaries

While the geopolitical world order is being challenged, AI progress continues at pace. We continue to find ideas at both ends of the value chain. The astonishing precision required to make next-generation AI chips has created specialist global suppliers whose expertise boosts their staying power.

DISCO is a company of this ilk. The Japanese firm manufactures dicing, grinding and polishing equipment essential to making advanced chips. We added it to the portfolio this quarter.

At the opposite end of the AI chain are applications that can materially improve businesses. Salesforce, another new buy, is using the technology to develop digital assistants that promise to automate parts of customer relationship roles. Advertising platforms AppLovin and Paycom are doing the same in advertising and payroll software.

The market’s focus on geopolitics presents opportunities to expand our exposure to this AI value chain, which now accounts for over a quarter of the total portfolio.

Redeploying gains

A large dispersion in the valuations between the most expensive and cheapest companies is an opportunity to redeploy capital within the portfolio to enhance future returns. We’ve sold two great businesses, Analog Devices and Schibsted, as their valuations fully reflected our enthusiasm. We’ve also taken some profits from successful tech businesses, including Netflix, Shopify and MercadoLibre.

We’re using this capital to build out the base of growth in the portfolio, funding the ideas detailed above and others that are purposefully uncorrelated to trade or AI. Brookfield, one of the world’s largest alternative asset managers, is one example. It entered the portfolio in December, and we increased our holding in the last quarter.

These new ideas and redeployment leave Monks’ portfolio well-positioned to navigate an uncertain environment.

The portfolio stands at a modest valuation premium to the index, with greater and more varied growth potential, and our three growth profiles (stalwarts, rapid and cyclical) remain well-balanced. We’ll continue to challenge ourselves on the implications of a changing world while unearthing the unappreciated opportunities that increased market volatility offers. We believe this is a winning formula to deliver attractive returns to you, the Trust’s shareholders.

Performance source: Morningstar, FTSE, total return in sterling

Past performance is not a guide to future returns.

Important information    

This communication was produced and approved in April 2025 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.  

The Trust invests in overseas securities. Changes in the rates of exchange may also cause the value of your investment (and any income it may pay) to go down or up. 

This article does not constitute, and is not subject to the protections afforded to, independent research. Baillie Gifford and its staff may have dealt in the investments concerned. The views expressed are not statements of fact and should not be considered as advice or a recommendation to buy, sell or hold a particular investment.

Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated by the Financial Conduct Authority (FCA). The investment trusts managed by Baillie Gifford & Co Limited are listed on the London Stock Exchange and are not authorised or regulated by the FCA. 

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