Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by Majedie Investments. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
Majedie Investments (MAJE) is a self-managed investment trust offering exposure to a broad range of equity strategies – via funds managed by Majedie Asset Management (MAM) – some of which cannot be accessed via any other means by private investors. MAM, which also won the mandate for Edinburgh Investment Trust from Invesco in 2020, has assets under management of c. £8.2bn.
MAJE retains a 17.2% stake in the asset management company itself, which currently represents c. 16.7% of MAJE’s NAV (as at 31/12/2020). In addition to its holding in MAM, the portfolio is split across five funds offering broad geographic diversification across the globe. Predominantly this is through equities, and it includes long/short equity via the Majedie Tortoise Fund.
MAJEDIE INVESTMENTS ASSET ALLOCATION (%)
|MAM UK Equity||28.5|
|MAM Tortoise Fund||11.6|
|MAM UK Income Fund||6.3|
|MAM US Equity Fund||-|
|MAM Global Equity Fund||24.2|
|MAM International Equity Fund||8.1|
|Cash / Other||4.6|
Source: Majedie, as at 31/12/2020
The managers are fundamental ‘stock-pickers’ with a flexible investment process who are not afraid to choose stocks that might be out of favour. This means that they have been able to invest in companies which they believe are fundamentally undervalued, and offer an attractive risk/return profile which should perform well in a variety of market conditions.
But how has the trust faired in the challenging 2020 environment?
Although the underlying funds held by the portfolio have performed relatively well versus their benchmarks, in overall performance terms Majedie Investments has – like many trusts in 2020 – had a challenging year. The trust’s portfolio bias toward the UK worked against it, with Brexit uncertainty clouding global investor sentiment. However, the tables have turned in recent months as the market absorbed news that a Brexit deal was done, and news of a vaccine opened up the potential for a significant global economic recovery.
The last three months have seen performance improve dramatically and the trust has delivered NAV returns of 11.3% (to 31/12/2020), outperforming its peers and the MSCI World which have delivered NAV total returns of 11.1% and 7.9% respectively. We see this as a vindication of the trust’s contrarian positioning and a testament to the diversification benefits it offers.
Within the portfolio the Global Equity Fund, International Equity Fund and the Tortoise Fund have stood out over the past three months. In the Global and International funds, we understand that stock selection has driven the majority of the relative performance and the returns have come from a diverse number of stocks. Samsung, AP Moller and MercadoLibre were three of the standout winners across the funds, while the high level of exposure to emerging markets was beneficial for the trust. The Tortoise Fund, which has a strong long-term track record in the long/short equity space since launching in 2007, saw its long weighting towards financials drive returns. With the short book having been scaled back significantly in the spring of 2020 after markets had crashed with the initial onset of COVID-19, the long book was also increased. This was a result of the managers having taken advantage of what they deemed opportunities in oversold companies with good long term structural drivers, and helped the Tortoise fund to deliver returns of more than 22% in the last three months.
Having seen a significant improvement in performance in recent months, we are enthusiastic for what 2021 has in store for the trust. Although MAJE’s NAV has performed strongly in recent times, the discount remains wide at present, and we also believe there is plenty of room for the underlying NAV to perform. In particular, the managers believe that the UK portion of the portfolio (representing c. 35%) offers exciting opportunities. Within this area the managers believe there are an abundance of undervalued companies with good structural growth opportunities. The uncertainty surrounding Brexit has been a key factor in the underperformance of the UK market in their view, as it was shunned by global investors. The UK equity portfolio offers exposure to companies that are performing well operationally and that compare well to global peers, as the global economy recovers as the vaccines are rolled out. The global funds have demonstrated strong performance in 2020 due, we understand, to fundamental stock picking and have a broad portfolio not skewed to any investment style. Further details on performance can be found here.
The valuation of the unquoted stake in MAM has been a significant drag to the performance of MAJE’s NAV, having been written down by 28% in 2020 due a reduction in AUM. The MAM valuation methodology is reported quarterly and was changed in May 2020. It now reflects market multiples (discounted by 20%), current earnings, and surplus cash after deducting 200% of regulatory capital. MAM has paid a significant dividend to MAJE, which currently yields 5% and trades on a discount of 16%.
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