Stick with Mid Wynd
The trust’s managers are stepping down, but their recent changes leave it well placed
The announcement that both Simon Edelsten and Alex Illingworth, managers of Mid Wynd International Investment Trust (LSE: MWY), are leaving Artemis at the end of September is unwelcome news. They have managed the £480m trust since 2014, when they wrested the mandate from Baillie Gifford. Over that time, they have generated returns of 184% – significantly better than the 141% total return from the MSCI All Countries World index – through a growthoriented global investment strategy based on investment themes such as “digital finance,” “healthcare costs” and “lowcarbon world”. There are nine such themes, “materials” having been added recently, and around 60 holdings.
While Edelsten and Illingworth focus on longterm prospects rather than short-term trading, there is also a “disciplined approach to valuation” that enables them to respond pragmatically to changing opportunities. This has enabled MWY to outperform Scottish Mortgage Investment Trust (LSE: SMT) significantly in the last year, although it is still well behind over five years.
Edelsten and Illingworth are being replaced by Alex Stanic, who has just joined Artemis from JPMorgan Asset
Management, and two analysts who joined 18 months ago. Presumably, MWY’s board are satisfied that there will be continuity, but it is still not the smooth transition investors expect and Stanic will bring with him a different perspective on investment. So why not sell now and look again in a year’s time when the impact of the change can be assessed?
Investing in energy
The answer is that Mid Wynd has made some portfolio changes that could pay off handsomely this year. After a meeting with the chief financial officer of ExxonMobil, the managers 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,” says Edelsten. “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.”
Thus Edelsten bought EQT, one of the main gas producers in the Marcellus shale formation in the US 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 in.
Opportunities in Japan
In addition, 13.5% of the portfolio is invested in Japan. Mitsubishi UFJ, the largest bank, trades at a 33% discount to book value, while JPMorgan trades at a 40% premium, says Edelsten. MFUJ makes a 6% return on book equity, compared with JPMorgan’s 14%, but this may be about to change. “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.”
As to the broader market, “inflation is now retreating and, after a significant fall in the equity market, better value has started to appear,” he says. “We’ve been impressed by how well our investments have coped with the challenges and have continued to grow their cash earnings. We’re confident our portfolio is well positioned to grow in value.”
There is enough promise in the portfolio and in the managers’ positive outlook to justify giving MWY the benefit of the doubt for at least another year, even though the shares trade at a discount of just 2% to net asset value.