Mid Wynd International 11 September 2019

Mid Wynd (MWY), run by managers Simon Edelsten, Alex Illingworth and Rosanna Burcheri, look for longer term growth areas around the world and companies that can invest and grow in value even when economies are dull. They group these ideas into broad industry themes and then ensure they have spread investments between different themes with different drivers and also stocks exposed to this growth which trade on attractive valuations, often less well-known companies.

The portfolio normally consists of eight to ten themes, although the manager will have themes on the back burner that aren’t being used. Each theme has an upper limit of 25% of NAV, each carefully compared to one another through a correlation matrix to ensure that the trust is not over exposed to a particular trend. As of August 2019, healthcare costs (17.2%), online services (17.1%) and emerging market consumer (15.6%) make up the largest themes.

With the benchmark as the MSCI AC World Index, the managers aim to outperform over the long term by profiting during rising markets, and then protecting capital where possible when markets fall. The aim of protecting capital is a key and consistent aspect of the trust and, according to the managers, since inception the trust has outperformed more in months when the market has fallen than when we have seen rising markets (61% vs 58%). According to data from Morningstar, the trust has delivered NAV total returns of 121.8% since the managers took to the helm of the portfolio in May of 2014, compared to a return of 90.5% and 91.5% respectively from the MSCI AC World index and the IT Global sector average. As such, the trust sits in the top quartile of the AIC Global peer group for generating alpha (4.03) over that period and has a Sharpe ratio in the top two of the peer group, a testament to the success of their risk management processes.

Over the past few years the trust has consistently traded at a premium and this became even more pronounced towards the end of 2018, as investors looked increasingly for a ‘safe haven’. In December, the trust reached a premium as high as 7%, but this has since narrowed and currently the trust is trading on a premium of 3.8%.

The managers have clearly proven that they have the capacity to protect capital on the downside, but deliver long-term upside for investors. This is an extremely attractive proposition, especially in the current volatile climate. This is demonstrated by the five-year downside capture of just 75.5%, and an upside capture of 106.9% (Morningstar).

We see the trust as a core holding for investors, offering investors smoother equity returns than peers. Looking across the global peer group, no trust is as consistent as Mid Wynd in their returns, except for Lindsell Train which is trading at a premium of 25%. Furthermore, despite seeing a slowdown in growth across the globe, the fact that the team at Mid Wynd invest in growth companies, which tend to invest in new products, may allow them to continue to grow regardless of the economic conditions.

Mid Wynd’s board has demonstrated its commitment to discount control and so in our view there is little additional risk from the discount widening out on a sustained basis unless something changes dramatically.