Majedie Investments (MAJE) offers investors access to a multi-manager portfolio, with the underlying funds selected exclusively from those managed by Majedie Asset Management (MAM). MAJE currently blends four equity funds, combining a dedicated UK, global, global ex-US, and absolute return strategies. MAJE also owns a 17.2% stake in MAM which is unlisted.
MAJE has generated strong performance since Q2 2020, further increasing with the reflationary rally in Q4 . While its managers follow a flexible process to investing, at an aggregate level MAJE has a strong overweight to the UK and slight value tilt, which have both recently been beneficial despite having previously held the trust back relative to global peers. These factors, along with the write-down of MAM, caused MAJE’s underperformance against a global equity index and its peer group average over a five-year period.
In December 2020 MAJE moved from the AIC global sector into the AIC global equity income sector, to better reflect its income-generating capacity. Its current historic dividend yield of 4.8% is the highest in the global equity income sector, with MAJE having delivered 6.2% annualised dividend growth since MAM took over managing the trust in 2014. MAJE also has revenue reserve coverage of four times its dividend, one of the highest revenue reserves of any investment trust.
Over the fourth quarter of 2020, the board of MAJE streamlined the portfolio, reducing the number of funds from six to four. The trust retains its significant weighting to the UK, now at its highest levels in its recent history, with the managers believing the UK looks particularly attractive thanks to its vaccine-led recovery, successful negotiation of a Brexit deal, and attractive valuations.
MAJE was well-positioned for the rotation in global markets following the news that vaccines would be effective and has also benefitted from the board’s confidence in the UK. In our view, the current tilt to value (through its underweight to the US and exposure to the Tortoise Fund) and the UK should continue to be helpful if the reopening continues as planned. In particular, we note there is scope for the UK to do very well thanks to the reduction in Brexit uncertainty and the fast vaccine roll-out, which comes after its markets have sunk on to low starting valuations.
As a direct result of these tailwinds, we also believe that MAJE’s discount has the potential to narrow in the near to medium term. We believe its current discount is a reflection of its past underperformance, as well as a collection of unique factors which may dissipate over time. One of the more attractive features of MAJE continues to be its strong income potential, given its sector-leading dividend yield, which is another factor which could support the discount narrowing.
Thanks to its large weighting to the UK and its holding of the unlisted MAM, MAJE is highly active relative to its peer group and a global benchmark. It will likely underperform if the US market leads thanks to its structural underweight but offers investors a way to bet on the UK outperforming and at the same time enjoy a high dividend yield supported by exceptionally strong reserves.
|Offers exposure to a UK economic recovery
||Expensive structural debt is a drag on returns
|Wide discount offers attractive entry point to a high pedigree boutique asset manager
||Any deterioration in the UK’s outlook will disproportionately impact the trust
|Highest yield in the sector with very strong revenue reserves
||High ongoing charges relative to peers