Comparing Ballie Gifford Alpha (OEIC) to Monks (IT)

aroominyork

I currently hold Ballie Gifford Global Alpha Growth (OEIC) and am thinking of selling it and buying Monks (close end IT). Am I thinking this through correctly?

The funds have the same managers; the Alpha team took over Monks in early 2015 following which it moved from a discount of c.12% to a current premium of 3%. Most holdings are the same (though not to the same %'s) but Monks also holds some smaller, less liquid companies. Monks is lightly geared at 102%.

In terms of performance, Alpha has risen approx. 29% over the last year and 60% over the last two years. Monks price (not NAV) has risen 48% in the last year and 90% in the last two years. The discount/premium shrank gradually over those two years, so Monks outperformed Alpha by about 11.5% during the last year (48-29-(15/2) and about 15% over two years (90-60-15). Alpha’s FE is currently 114, Monks’ is 120.

The upsides of Monks look attractive so I need to make sure I understand the downsides, especially if there is a general fall in stock markets. Are these:
1) Gearing exacerbates losses in a falling market
2) The smaller/less liquid companies may underperform in a falling market and drag Monks down compared to a more robust Alpha
3) The premium might turn into a discount so if I wanted to sell that would reduce the value of my holding.

Thanks.

dividendhero

Monks certianly has a good record of capital growth and good geographic diversity, but yield is too minuscule for my liking

aroominyork

Thanks, dividendhero, though given your user name I wouldn't expect a fund called 'Alpha Growth' or its IT equivalent to suit you.

It really is the additional risk of Monks over Alpha Growth that I am trying to fully understand.

Reaper

I don't think you should compare Monk's share price, use the NAV instead. Monks underperformed for a long time, leading to a high discount. The discount disappearing has flattered the growth figure but is a one off, so there is no point chasing it now.

The NAV has grown 24.9% over the last year, whereas you say Alpha has grown 29% (I'll take your word for it, I haven't checked).

So switch if the Investment Trust setup appeals to you, but not to chase past performance gains. Particularly as historically past performance is a poor guide to the future.

BTW I invested in Monks for my son. I was on the point of giving up on them until they switched managers, so I am relieved they have improved.

aroominyork

Thanks Reaper for pointing out the bleedin' obvious, that I should look at Monks' NAV rather than adjusting the price to take account of the eroding discount. So as of today I make it 2015/16 + 2016/17 growth of Monks 26.80% + 30.17% = 65.51% compounded, and Alpha 25.32% + 27.69% = 60.02% compounded. So I had radically miscalculated and the difference is 5.5% over two years, not 15%.

Reaper

Happy to have helped. Our figures differ marginally, probably just because of slightly different dates. Mine came from the most recently issued factsheet and cover the year ending 30/9/2017

aroominyork

... and mine from HL's website so accurate as of yesterday.