It’s time to repurchase this unsexy investment trust

New managers have proven their ability to recreate its market-beating returns

With investors fretting about whether the unprecedented stock market run of US technology giants can last, it’s time to find a fund taking a broader approach to growth investing.
One such is the Mid Wynd International investment trust, a former Questor tip, which we advised selling at 708p in July last year, a month after the company appointed Lazard to replace Artemis as fund manager.
A big change in investment manager is often a good time to take profits, we argued, having notched up a 46pc capital gain after recommending the shares in March 2018. By contrast, the FTSE 100 had gained just 7pc.
Our uncertainty was accentuated by the longer-term performance of Artemis’ Simon Edelsten and Alex Illingworth. Since taking over from rival Baillie Gifford in May 2014 the managers had generated a 184pc share price gain, beating the 160pc rise in the MSCI All Country World index.
The decision to hire Lazard came four months after Artemis revealed that Edelsten and Illingworth were leaving, reuniting just this week at Goshawk Asset Management, a new firm that does not yet have an investment trust.
News of their departure from Artemis prompted an unimpressed Mid Wynd board to look elsewhere. Could the good performance continue amid this turbulence, we wondered, urging investors to switch to one of many trusts trading below the level of their investments.
Fifteen months later, our fears have not been realised. Mid Wynd shares are up 12pc at 793p and have avoided falling to a wide discount to asset value. That’s an indication that the new managers – Louis Florentin-Lee and Barnaby Wilson – are doing a good job of finding large, good-quality growth stocks.
The pair have not beaten their benchmark in their first year in charge, with the 42-stock portfolio’s 13pc gain trailing the 19.9pc advance in the MSCI index. However, like the Artemis managers, the Lazard duo can point to a successful track record.
At the time of their appointment, a global fund they ran for institutional investors from February 2011 had beaten the MSCI index by 2.4pc a year, an impressive margin of outperformance.
Their strategy is to invest in “compounders”, or exceptional companies with competitive advantages that enable them to generate high returns on capital, a big proportion of which they reinvest in their businesses rather than pay to shareholders in dividends.
While that leaves Mid Wynd on a meagre 1pc dividend yield that won’t impress income seekers, the focus on financial productivity is a boon for growth investors wishing to avoid bubble stocks. As Mr Wilson argues: “It’s better to focus on earnings rather than sentiment in the market.”
A discipline of not overpaying is underpinned by picking companies whose long-term earnings power is not fully recognised by the market. Businesses that go on to “beat the fade” and maintain high profitability longer than other investors think are very valuable, the managers say.
Mid Wynd’s 12-month underperformance is partly explained by not holding two of the “Magnificent Seven” stocks – Nvidia, the chip maker leading the artificial intelligence revolution, whose shares have soared 243pc; and Facebook-owning Meta Platforms, which has stunned with a 96pc surge.
Nevertheless, with 29pc in IT stocks and 62pc in the US, this is no anti-tech fund. The biggest holding, at 5.3pc of assets, is Microsoft, a Magnificent Seven stock whose “ongoing ability to deploy capital at attractive rates” in software, cloud computing and AI delights the managers.
Other well-known tech stocks include Alphabet, owner of Google, and Taiwan’s TSMC, whose foundries make chips for Nvidia and others.
Less familiar additions are Cadence, a US company whose software enables semiconductor manufacturers to design and test their complex products, and VAT Group, a Swiss firm whose valves create the vacuum conditions essential for depositing minute quantities of silicon on circuit boards.
The managers also found space to bring in Diageo at a recent four-year low after a profits warning. They have also been long-term holders of Dollarama, the Canadian discount retailer and a “classic” compounder.
Mr Florentin-Lee says: “Stocks don’t have to be sexy to be good businesses and generate great returns for shareholders.”
Questor agrees. Having learned more about the managers’ philosophy, we are happy to reinstate Mid Wynd as a “buy”, although investors might want to hold off until after next week’s US election which could rock markets in the near term.
Questor says: buy
Ticker: LON:MWY
Closing price: 784p
Gavin Lumsden is editor of Citywire’s Investment Trust Insider website
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