When the directors of the ailing, family-controlled Majedie Investments (LSE: MAJE) were looking for a new manager, they looked for something different from the mainstream. They found it in Marylebone Partners, a small boutique founded in 2013.
“As an investment trust, you need to give investors something they couldn’t get elsewhere,” says Dan Higgins, Majedie’s lead manager. That is achieved through what Marylebone calls its “liquid endowment model” – a mix of niche funds in selected areas, direct investments and special situations, but no private equity or property.
The success so far is shown by net asset value (NAV) growth of 18% from 1 March 2023 to the end of 2024. The discount to net asset value – once more than 30% – has fallen to less than 5%, giving investors a return of 30%. Yet with just £150 million of net assets, Majedie is a small trust, so hasn’t appeared on the radar of private investors or large wealth managers.
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The changing investment landscape
“The investment landscape has changed,” says Higgins. The regime of falling interest rates that lasted for 40 years reversed in 2020. This means investors can no longer rely on a market tailwind, but have to be smarter at selecting the right securities.
The US dominates global markets to an extent not seen since 1970. The concentration of the S&P 500 in the top ten stocks (36%) is the highest for 60 years. “It is unusual for the largest companies to outperform by so much,” Higgins says. What’s more, the US outperformance of the past 25 years was at variance with the previous 20, while the profit margins of the largest, now capital-light, US companies are at record highs and the dollar “looks stretched”. As a result, Majedie’s portfolio contains none of the largest 50 stocks in the MSCI World index.
Marylebone Partners believe that while overall market returns will be dull, much better returns are available outside the mega caps. So 60% of the portfolio is invested externally in “world-class active managers in specialist areas” – half equity-centric, half absolute return. These funds, managed by specialist boutiques, are sourced from a network “built over three decades”, and many are closed to new investors.
These include a mid-cap biotech fund, a Japanese small-cap activist fund and several specialist credit funds. A Chinese value fund reflects Marylebone’s belief that “markets are underestimating the resolve of the authorities to stimulate the economy, but incrementally” and that China is a “highly inefficient market”.
Another 20% of the trust is invested in “co-investments and thematic opportunities” emanating from “trusted sources who must have something to lose in the stock”. These include listed uranium miners and two listed US restaurant groups being turned around by new management.
The final 20% is invested in listed equities, four of which are in the UK. “It’s hard to get bullish about the UK from an economic, cultural or political point of view, but there are some great companies here,” says Higgins. These include Weir Group, which “the market still thinks of as an oil services company, but is now focused on mining equipment and consumables”. Marylebone is bullish on China and optimistic about mining, especially copper.
Preserve and grow
“Capital preservation is our first priority,” says Higgins. Only 55% of the portfolio is focused on equities, while 31% is in absolute return funds and 6% in other assets. The remaining 9% is in cash, pending the repayment of a debenture.
Higgins sees the potential to grow the fund to at least £500 million through performance and equity issuance once the shares are trading at a premium. They are not there yet – the discount to January’s estimated NAV is now 3.5% – but strong performance on the back of a highly differentiated approach suggests they soon will be.
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