Mid Wynd International: Global Thematic Investing

Global trusts did very well during the 2010s and Mid Wynd International sits near the top of the pack.

Global glory?

Performance stats can lead us astray of course, but there’s no denying that average 325% return that global investment trusts have produced over the last decade certainly looks impressive.

10 of the 16 trusts in the sector have more than trebled their shareholders’ money over the last decade, therefore beating the performance of a global tracker.

But you need to dig into the detail as always.

There were 36 trusts in the Global Growth sector, as it was then called, back in December 2009. More than half of those funds now reside elsewhere.

Many of the more conservative global trusts that produced lower returns in the 2010s, like RIT Capital Partners, Personal Assets, and Caledonia Investments, have moved to the Flexible sector.

Others have been moved to more appropriate homes like UK All Companies or Global Smaller Companies.

And a few are no longer with us.

What’s more, a couple of superstars — Lindsell Train (up 670%) and Scottish Mortgage (up 500%) — drag the average up a fair bit.

And if you look on a net asset value basis, the average gain of the 16 Global trusts falls to 265%. That means narrowing discounts have helped juice returns by almost two percentage points a year.

Indeed, on a net asset basis, only 3 Global trusts have trebled this past decade. Mid Wynd International is one of them.

Key stats for Mid Wynd International

• Listed: 1981
• Ticker: MWY
• 10-year net asset return: +219%
• Benchmark used: MSCI All Countries World
  
• Current price: 606p
• Indicated spread: 605p-607p  (0.3%)
• Exchange market size: 500
• Results released: March (interims) and September (finals)
• Market cap: £274m
• Net assets / premium: 583.5p / 3.9%
• Costs: 0.7% OCF and 1.47% KID
• Gearing: 0.4%
• Current dividend and yield: 5.83p and 1.0%
• Dividends paid: March (interim) and October (final)
• Style: Freestyle global using 8-10 themes
• Links: Website and AIC page

A very long history

Mid Wynd International is a relatively young investment trust, having been listed for four decades. But its full story can be traced back for more than two centuries.

In 1797, the Scott family bought a mill for their new textile business in Mid Wynd (the middle of three lanes) in Dundee.

As with Caledonia’s shipping origins, an investment company was eventually set up to manage the family money, running alongside the main business.

In 1965, the textile business was merged into Scott & Robertson (which ended up as part of RPC Group, I believe) and Baillie Gifford was appointed to run the remaining Mid Wynd investment arm. It was privately held for a while before joining the stock market as an investment trust in 1981.

The Scott family are still involved today, with two of them sitting on Mid Wynd’s board. Chairman Malcolm Scott (aged 69) is due to retire at the next AGM in November 2020 which will leave Oliver Scott (50) as the sole family representative.

Baillie Gifford managed Mid Wynd up until 2014 when Michael MacPhee, who had overseen the fund for 15 years, decided to retire. Baillie Gifford was running four other global funds in addition to Mid Wynd, although they were all quite a bit larger.

“Lengthy discussions” were held with Baillie Gifford who were suggesting some “far-reaching” proposals about the fund’s future. This led to Mid Wynd conducting a beauty parade of other advisers to explore their options.

Baillie Gifford took part but Artemis Investment Management won the mandate.

Artemis’s appointment seems to have raised the odd eyebrow at the time. It only managed two other investment trusts and the main one — Artemis Alpha Trust — didn’t have the greatest track record and it still hasn’t today.

Overall, Artemis runs 26 retail funds, several institutional mandates, and manages a total of £28bn of assets. The 3 investment trusts represent just £450m.

However, the team running Mid Wynd — Simon Edelsten, Rosanna Burcheri and Alex Illingworth — have done well so far.

Edelsten, who was formerly involved in the Electric & General Investment Trust, is the best known of three and writes a column for the FT (which seems to be reproduced on the Mid Wynd website if you’re not a subscriber — scroll down to the ‘Related Insights’ section).

The same team runs Artemis Global Select. It hasn’t performed quite as well as Mid Wynd but it sits a respectable 61st out of 486 global mutual funds over the last five years with a return of 85%.

Skin in the game

It’s not clear what proportion of the company’s share the wider Scott family owns but the two directors’ (beneficial and non-beneficial) interests account for around £7m. That’s about 2.5% of the shares in issue.

In an interview with Kepler, Malcolm Scott was asked how large the Scott family interest was and replied:

It’s difficult to know exactly. The proportion shrinks every month as more shares are issued to satisfy growing demand from the wider public. From anecdotal evidence, it’s clear to me that most of us when we’ve inherited shares have kept the money invested because we see it as a sensible way of managing money, and I’m sure some of the family are actually buying shares today for children and grandchildren because they like the way the Trust is run.

Edelsten owns around £13m (5%), which is a pleasingly meaningful sum. He’s 58 so you’d expect him to stick around for a few more years at least. I would presume either Burcheri and/or Illingworth would take the reins should Edelsten move on. They’ve both been with Artemis since 2011.

Russell Napier, a favourite commentator of Moneyweek’s and author of Anatomy Of The Bear, is also on the board and is due to take over from Malcolm Scott as Chairman later this year.

Napier owns around £0.75m of Mid Wynd, although he’s been reducing his holding in recent years. He sold 20% of his holding in the year ended June 2019 and owns less than half the number of shares he did back in 2014.

Investment style

From the latest annual report:

The objective of the Company is to achieve capital and income growth by investing on a worldwide basis. Although the Company aims to provide dividend growth over time, its primary aim is to maximise total returns to shareholders.

All the investments seem to be in quoted companies so net asset value updates are provided daily.

Here’s another snippet from the annual report which fleshes out the style used a little more:

We continue to invest in quality growth companies, but we also try to ensure that average valuations across our portfolio have not risen unreasonably. Furthermore, we aim to keep the fund well enough diversified to cope in future scenarios both easily anticipated and unpredictable. With politics, economies, trade, and bond rates all unusual, we maintain a style we believe to be more capital protective than the equity index. High quality companies which have invested for the future and which have reasonable valuations should continue to provide healthy investment returns even in troubled times.

Here’s the 10-year summary from 2019’s annual report, demonstrating the steady share price gains and dividend growth:

Gearing

Mid Wynd has the authority to gear its portfolio up to 30% although there appears to have a small but reducing net cash position for most of the last decade.

Borrowings have remained steady at around £5m, despite net assets rising from £50m to £250m.

The current loan facility is a $30 million multi-currency revolving credit facility with Scotiabank that runs to February 2021.

Discount control policy

Mid Wynd has typically traded at a small premium these past several years and regularly issues new shares to ensure that the premium doesn’t grow too large.

The board’s official policy is to keep the discount or premium below 2% in normal circumstances although it’s regularly spiked up to the 4-6% range for short periods in recent years.

Since Artemis’s appointment in May 2014, the number of shares in issue has risen from 25 million to 45 million.

The themes

Mid Wynd organises its portfolio based on various themes. Here’s the split as of the end of November 2019:

• Online Services: 20.1%
• Automation: 15.5%
• High Quality Assets: 13.7%
• Healthcare Costs: 12.9%
• Emerging Market Consumer: 12.5%
• Low Carbon World: 10.7%
• Screen Time: 9.2%
• Scientific Equipment: 4.9%

Most of these themes are self-explanatory except for High Quality Assets, which is a mixture of property and, rather bizarrely in my view, two large gold miners: Newmont Goldcorp and Barrick Gold.

The themes do change and evolve. Low Carbon World and Screen Time are recent introductions, replacing Tourism and Retiree Spending Power.

Mid Wynd says it typically expects to have between 8 to 10 themes at any given time. But they seem pretty broad to me, so Mid Wynd probably has a wide range of companies it can pick from. There’s brief commentary in each report about how each theme is progressing.

Portfolio

Mid Wynd says it looks to invest in 40-140 individual stocks early on its annual report but also mentions a much narrower range of 55-70 later on.

At the moment, the number of holdings is in the mid-60s and it appears to have been much the same level since Artemis took over the reins.

Most equity trusts I’ve looked at have 25-100 holdings, so that puts Mid-Wynd somewhere in the middle of the pack.

It’s a very evenly spread portfolio in terms of position sizes.

As of September 2019, the most recent full listing I found, the largest position was 2.4%, the smallest 0.4%, and only 9 holdings were less than 1%.

For those looking to reduce their ‘home bias’, Mid Wynd can certainly help. It only has 3 UK-listed holdings — Diageo, Vodafone, and SEGRO.

There also seems to be a decent mix of well-known names held by other popular global trusts and more unfamiliar companies. So holding Mid Wynd as part of a wider portfolio should provide a reasonable amount of additional diversification.

Sector and country splits

Although Mid Wynd benchmarks itself against the MSCI All Countries World Index (23 developed and 24 emerging markets), it certainly doesn’t look to match this index in terms of country or sector weightings.

Mid Wynd’s North American weighting is 52%, with 22% in Europe ex-UK and 11% in Japan. The UK, emerging markets and developed Asia are roughly 5% apiece.

Sector-wise, IT and Healthcare are by far the largest at around 20%. Financials and Communications add another 10% each.

I didn’t come across any mention of portfolio turnover but from a quick comparison of the latest portfolio against the lineup from three years ago, I would say it’s fairly high. More than half of the current major holdings seem to be newer than three years old.

I guess this is partly a factor of the changing themes, where several stocks may get the chop in short order, and partly due to its value-based approach where it tends to recycle expensive-looking shares into cheaper alternatives.

The latest Key Information Document (KID) puts portfolio transaction costs at 0.67%, which also suggests Mid Wynd is a fairly active buyer and seller.

Charges

Those portfolio transaction costs are the main reason for the difference between the costs per the KID of 1.47% (which breaks down as 0.8% ongoing and 0.67% transaction) and the quoted ongoing charge of 0.7%.

Overall, I’d say the charges are pretty decent for a fund with just £250m in assets. The basic management fee is 0.5% with no performance fee, so 0.2% comes from administration charges.

There is no tier structure to reduce the management charge as assets get bigger, but I suspect this is something that might be introduced in the next few years.

And the 10-year summary I posted earlier in this article shows that the charge has been reducing steadily over time — from 0.9% to 0.7%.

Summing up

Mid Wynd ticks a lot of boxes.

Despite its conservative/value stance, it’s steadily outperformed the global market since Artemis was appointed (and for several years preceding that as well it would seem).

Not many funds leave the Baillie Gifford stable, let alone continue to prosper afterwards.

Since May 2014, Mid Wynd has returned an average of 15.5% a year, which is three percentage points higher than MSCI All Countries index. Admittedly, I’d prefer to look at a slightly longer timescale, but I like the fact the outperformance has also been consistent rather than swinging wildly about from year to year.

Edelsten’s large position in Mid Wynd is also reassuring, as is the long-running involvement of the Scott family, and the costs seem fair for a fund of this size.

The thematic approach also provides a little differentiation from other global trusts and has echoes of the way I think about my portfolio.

   

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Disclaimer

Please note that I may own some of the investments mentioned above -- you can see my current holdings on my portfolio page.

Nothing on this website should be regarded as a buy or sell recommendation as I'm just a random person writing a blog in his spare time and I am not authorised to give financial advice. Always do your own research and seek financial advice if necessary!

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