The announcement that both Simon Edelsten and Alex Illingworth, managers of Mid Wynd, are leaving at the end of September is unwelcome news for investors.
They have managed the £480m investment trust since 2014 when they wrested it from Baillie Gifford. Since then the trust has returned 184%, significantly better than the 141% total return from the MSCI All Countries World Index.
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Mid Wynd investment trust’s global edge
The managers have beaten the index by focusing on an investment strategy based around global investment themes such as “digital finance,” “healthcare costs” and the “low carbon world.” Overall, there are nine such themes, “materials” having been recently added, and around 60 holdings in the portfolio.
While Edelsten and Illingworth have always focused on a company’s long-term growth prospects rather than short-term trading, there is also a “disciplined approach to valuation” which enables them to pragmatically respond to changing opportunities.
This has enabled Mid Wynd to significantly outperform Scottish Mortgage (SMT) in the last year though it is still well behind over five years. It has outperformed Scottish Mortgage’s lower octane stablemate, Monks, over all periods, hence its inclusion alongside Scottish Mortgage in the MoneyWeek portfolio.
Edelsten and Illingworth are being replaced by Alex Stanic, who has just joined the managers, Artemis, from JP Morgan Asset Management, and two analysts who joined 18 months ago.
Presumably, Mid Wynd’s board is satisfied that there will be continuity of style and strategy but it is still not the smooth transition investors expect and Stanic will bring with him a different perspective on investment.
The managers are positioning Mid Wynd for the future
So why not sell now and look again in a year or so’s time when the performance since the change-over can be assessed?
The answer is that, far from coasting to retirement, Edelsten has made some portfolio changes that could pay off handsomely.
Following a meeting with the Chief Financial Officer of Exxon, Edelsten started to invest in energy.
“It was notable that he was able to spend time with us as fewer London managers wished to meet him on his London trip. This is something of a sign that most investors are looking the wrong way. He told us how investment has fallen short across the industry and will take ten years to catch up.”
Instead of Exxon, Edelsten bought into EQT, “one of the main gas producers in the Marcellus shale and a beneficiary of the political will to ensure gas is available in Western countries avoiding Russian pipelines.”
There is also a holding in Halliburton, a major oil services business, to benefit from increased capital expenditure. Both holdings are below 1.5%, but Edelsten has always preferred to build holdings steadily rather than rush into a position.
In addition, 13.5% of the portfolio is invested in Japan. “Mitsubishi UFJ trades at a 33% discount to book value,” he says, “while JP Morgan trades at a 40% premium. This is explained by MFUJ’s 6% return on book equity compared with JP Morgan’s 14% but this may be about to change.
Japan and China are benefiting from post-Covid re-opening and the Yen, having fallen from 115 to 150 to the dollar last year, is now recovering. This should lead to capital repatriation.”
“With inflation recently reaching 4%, the Bank of Japan can finally move away from the ultra-low interest rates that have been central to its deflation-busting strategy. This makes Japanese banks look particularly interesting; it would take only slightly higher interest rates for their profit margins to improve sharply,” says Edelsten.
There are also holdings in three automation companies and in Panasonic, a world-leading battery manufacturer.
Mid Wynd investment trust is worth holding
As to the broader market, Edelsten says “inflation is now retreating and, after a significant fall in the equity market, better value has started to appear. We have been impressed by how well our investments have coped with the challenges and have continued to grow their cash earnings. We remain confident that our portfolio is well positioned to grow in value in the years to come.”
There is enough promise in the portfolio and in the managers’ positive outlook to justify giving Mid Wynd the benefit of the doubt for at least another year. The shares trade at a discount of just 2% to the net asset value.
Max has an Economics degree from the University of Cambridge and is a chartered accountant. He worked at Investec Asset Management for 12 years, managing multi-asset funds investing in internally and externally managed funds, including investment trusts. This included a fund of investment trusts which grew to £120m+. Max has managed ten investment trusts (winning many awards) and sat on the boards of three trusts – two directorships are still active.
After 39 years in financial services, including 30 as a professional fund manager, Max took semi-retirement in 2017. Max has been a MoneyWeek columnist since 2016 writing about investment funds and more generally on markets online, plus occasional opinion pieces. He also writes for the Investment Trust Handbook each year and has contributed to The Daily Telegraph and other publications. See here for details of current investments held by Max.
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