Mid Wynd: an investment trust profiting from long-term trends

The exceptional performance of funds run by Baillie Gifford over the last ten years has enabled it to grow existing trusts, launch new ones and take over the management of others. Back in 2014, however, it lost one to Artemis – the strangely named Mid Wynd International Investment Trust (LSE: MWY), which is now managed by the team of Simon Edelsten, Alex Illingworth and Rosanna Burcher.

Mid Wynd, named after an obscure alley in Dundee, has grown to £320m of assets, thanks to strong performance and regular share issuance. Returns of 98% over five years and 41% over three are well ahead of the 74% and 25% returns of the FTSE World index, helped by 8% outperformance in the last six months. This is still well behind Scottish Mortgage and Monks, but past returns are an unreliable guide to the future and Mid Wynd’s differentiated style adds diversity for those nervous of having too many eggs in the Baillie Gifford basket.

Beware of the fads

The team seeks to “select a number of long-term trends from around the world and then construct a portfolio that can benefit from these trends over the long term, regardless of the short-term economic environment”. Thematic investment has a mixed reputation as it is easy for inexperienced investors to follow popular fads only to find that these are widely reflected in share prices and are not durable. The themes in Mid Wynd are not necessarily original, but they are durable, while “a disciplined approach to valuation” is superimposed. 

This results in a growth-orientated portfolio. Online services accounts for 22%, including not just Amazon, Microsoft and Google, but also Equinix, which operates 205 data centres in 25 countries. Japanese firms, notably Difuku and Daikin, are well represented in the automation theme (12%), while the focus in healthcare (11%) is on controlling the cost to government as much as on innovation. Another 10% is in scientific equipment, including the largest holding, Thermo Fisher Scientific, at 2.5%, while 10% is in the growth of consumer spending in emerging markets (LVMH and L’Oréal). Tourism was dropped a year ago on the grounds that its success was provoking an environmental backlash but Booking.com and Amadeus were recently added back to the portfolio. 

“We have nothing in a lot of sectors, with banks, oil and retailing the most troubled areas,” says Edelsten. He describes the portfolio as “defensive as well as growth”, which would have sounded contradictory until this year. 

Stocks that stick to their guns

Like all good managers, Edelsten makes stock selection sound easy. He advocates “choosing companies that stick to what they are good at and invest in their own businesses”, pointing to Kongo Gumi, the world’s longest-lasting company, which was founded in Japan in 578, but fell into receivership a few years ago “as a result of taking on heavy debts and making dodgy investments in the 1980s real-estate bubble”. 

Diversification, though, isn’t obviously stupid at the time. BAT spent decades diversifying away from a core business that killed people into retailing, financial services and even cosmetics before returning its focus to cigarettes. Will Shell be any more successful with its diversification into renewable energy? Companies whose core business is in decline are under heavy pressure to diversify or change direction, but the best strategy may be to manage decline gracefully.

Through analysis of evolving trends, the Mid Wynd team is thinking ahead rather than extrapolating the past into the future. This promises many more years of outperformance.