Majedie Investments (MAM) aims to maximise total shareholder return while increasing dividends by more than the rate of inflation over the long term.
The portfolio is divided into six funds, all of which are managed by the well-respected boutique fund managers at Majedie Asset Management. MAM was launched in 2002 using finance provided by the investment trust and was led by a team that previously worked at Mercury Asset Management and Merrill Lynch. The strategy was to manage UK equities on behalf of institutional clients, but this has since been broadened to include global equities and an absolute return strategy, and clients now include wealth managers and endowments alongside institutions. The trust has a 17.1% stake in the privately-owned asset management company itself, which as of 31 March 2019 had £11.6bn of assets under management and makes up 27.5% of NAV (as at 30 June 2019).
The team at MAM uses a bottom up, fundamental research-based approach and a high emphasis is placed on risk aversion. When considering investments, the various investment teams look to extract the maximum return per unit of risk taken and try to understand how the holding will hold up in different market environments. As an illustration, over the past year the trust has the lowest down capture ratio, at 46.32, in the AIC Global sector, and a standard deviation of 10.86 relative to the sector average of 16.9, when excluding the effects of the holding in MAM.
Since the revamp of the trust in 2014, performance has been a tale of two halves. In the two years leading up to the 2016 European Union membership referendum, the trust delivered NAV returns of more than 50%, outperforming the MSCI World Index (49.9%), AIC Global peer group (41.7%) and the IA Global peer group (36.3%). However, the referendum result hit the trust hard, principally due to its large exposure to the UK and the cautiously positioned absolute return fund. Since then, the trust has struggled relative to global peers as investor sentiment towards Britain has soured. Over the past three years, the trust has delivered returns of 23.4% relative to 58.5% from the MSCI World, 69.4% from the AIC peer group and 52.3% from the IA peer group. With this said, the Global underlying funds have performed strongly relative to their respective benchmarks.
Alongside capital growth, dividend growth is an important part of the trust’s investment proposition. The board re-set the dividend in 2014 and, since then, shareholders have seen compound progression in excess of 10% p.a. Currently, the trust is yielding 4.7%, comfortably the highest yield in the Global sector, where the weighted average is 1.3%. In fact, it is the second-highest yield of any trust in the AIC Global Equity Income sector. As of the most recent annual report, the trust retains historic revenue reserves of close to £26m.
Currently the trust is trading at a discount a little over 18%, considerably wider than the sector weighted average of 0.2%.
Majedie has been self-managed since becoming an investment trust in 1988, initially employing fund managers before bringing management in-house in 2014. Currently trading on a discount of more than 18%, this moment in time presents investors an opportunity to enter a trust that is well positioned for an increase in global market volatility or even possibly a global downturn. In particular, we believe the Tortoise holding, which offers investors steady capital growth, will become an attraction for investors seeking a more defensive route to global equity exposure. The defensive positioning of the long-only funds should also provide downside protection.
Alongside a lower beta approach, the trust offers investors an attractive yield of 4.7%. On top of this, the company has revenue reserves to continue paying out an increasing dividend regardless of economic conditions.
Admittedly, performance in recent years has been muted relative to the trust’s AIC and IA peers; however, this is largely due to the trust’s overweight exposure to the UK given the macroeconomic and political uncertainties following the referendum. When comparing the underlying funds to their benchmarks over the past year, half have actually generated positive levels of alpha and, four out of the six funds have achieved this over five years. This clearly illustrates that, should we see some of the uncertainty subside, there is little reason to believe the trust should not see its discount narrow.
|Highly rated fund managers with excellent long-term track record||Exposure to UK is high relative to Global peers, meaning trust is not necessarily truly "global"|
|Wide discount in absolute and relative terms||Expensive charges figures, although mitigated by the dividend received by Majedie Investments Limited|
|Strong underlying alpha generation gives clear reason to believe there could be a re-rating when Brexit uncertainty subsides|
|Strong yield, far higher than peers in Global and Global Equity Income sector|