When Mid Wynd’s (MWY) board announced it had selected Lazard to take over from Artemis as the trust’s portfolio manager, it came as a surprise. The investment firm hasn’t managed an investment trust for many years and isn’t well-known among investors.
Despite this, Russell Napier, Chairman of Mid Wynd, says Lazard represented the clearest continuity from Artemis in terms of style, experience and record.
This does not guarantee that the investment team of Louis Florentin-Lee and Barney Wilson will outperform immediately (they took over on October 1st). Still, they stand as good a chance of producing reliable long-term out-performance as Simon Edelsten, the retiring lead manager, and his team.
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“The best way to generate consistent returns,” says Florentin-Lee “is to buy great businesses with sustainably high returns on capital and the ability to reinvest to generate growth.”
The managers are supported by an internal research team of 20. They have been investing in this style since January 2011, generating an annualised return, net of their proposed fee, of 12.4%, 2.4% ahead of the MSCI All Countries World Index.
Lazard portfolio overview
“Lots of managers say they invest in high-quality companies,” says Florentin-Lee “but many are not clear what that means. As well as analysing cash returns, we seek to understand the competitive advantage of companies We are value-conscious but valuation on its own is never a good reason to buy a stock.”
Lazard's portfolio turnover is 10-15% per annum, less than at Artemis. The portfolio has 41 holdings and the overlap with the benchmark index is just 10%.
- A total of 68% of the portfolio is in North America, 11% in Europe, 7.5% in emerging markets, 6% in Japan and just 2.4% in the UK – represented by RELX. The rest is in developed Asia and cash.
- Information technology accounts for 25% of the portfolio, industrials for 20%, financials 18% and healthcare 13%.
- Consumer stocks are 12% and communications services 7% but this doesn’t include any telecoms
“We have never invested in energy, utilities, mining, telecoms, or real estate,” says Florentin-Lee. Also, “we are only interested in companies with a profitable business model, not companies that seek to grow into profits.”
At the other end of the spectrum, “the worst place to put your money, according to our research, is in the cheapest companies. Cheapness indicates market concern about the sustainability of returns.”
Competitive advantage
The portfolio is full of recognisable names such as Alphabet, Coca-Cola, Visa and Microsoft but some are less well-known. Shimano, for example, has a dominant share of the global market for bicycle components, Iqvia is a market leader in contract research for pharmaceutical companies and Toei is a world leader in content animation.
ASML dominates the market for machines that enable the manufacture of computer chips, TSMC is a world leader in semiconductor manufacture and Zoetis is the largest animal healthcare company in the world. These and the other portfolio constituents clearly fit the managers’ criteria.
A lot of managers are charging into “quality” which raises the concern that it will become over-priced. However, the appeal of get-rich-quick strategies is seductive – either chasing growth at any price or believing that cheap shares will be suddenly re-rated when other investors catch on.
The long, steady march of solid returns may just be too boring for investors focused on the noise of the market, quarterly earnings and economics. “The market tends to think that competitive advantage will be whittled away over time but history shows otherwise. All you need is for companies to hold their multiples and just keep growing.”
The Board of Mid Wynd have chosen well – a management team that promises to maintain Artemis’s good record and, with lower portfolio turnover, perhaps even improve on it.
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