Lazard’s Barnaby Wilson and Louis Florentin-Lee kept only six of the 41 stocks in Mid Wynd (MWY ) after overhauling the global portfolio they inherited from Artemis fund managers Simon Edelsten and Alex Illingworth.

Half-year results this week showed Wilson and Florentin-Lee firmly put their quality growth stamp on the trust after its board selected them in the wake of the departure and retirement of Illingworth and Edelsten last year.

Since their formal appointment on 1 October the pair have bought 35 new companies, filling the portfolio with compounders – or companies that persistently have a high return on capital and reinvest in themselves to grow.

Only Estée Lauder, Rockwell Automation, Adobe, Microsoft, Alphabet and TSMC were left remaining. They currently account for just over 20% of assets.

The duo increased exposure to financials, industrials and technology, while decreasing the weighting to healthcare and consumer staples exposure – which led to a higher proportion of US-listed companies and fewer European and UK names.

The second half of last year, which was equally split between Artemis and Lazard, saw an underlying return of 6.8% – ahead of the MSCI All Country World index’s 7% – while the shares gained 7%.

Chair Russell Napier reminded investors that Lazard waived the management fee from appointment until 13 January, covering the costs of repositioning the portfolio, which was virtually complete within four days and cost just 0.03% of net asset value (NAV).

There has been no turnover since the reorganisation of the portfolio, which Napier said investors could expect for the foreseeable future.

He emphasised that the new focus on compounders meant the trust’s investors will see a higher proportion of future total returns come from capital appreciation rather than dividends, including special dividends.

The board is proposing an interim dividend of 3.85p per share, covered by earnings of 4.72p per share, that will be paid out on 28 March. In future, dividends will be funded by revenue reserves until portfolio revenue grows to a point where it could cover the payout.

Napier, who is stepping down at the annual general meeting in October, added that the board had maintained its zero discount control at a time when investment companies were struggling to keep their shares close to par.

By contrast, Mid Wynd shares stayed within 2% of NAV, ending the year at a 1.7% discount before moving to a 1.7% premium yesterday, which contrasts with a global sector average of 11%.

‘At a time of great uncertainty, the certainty of high returns on invested capital, where we can find it and buy it at a good price, is likely to be a port in a storm for investors,’ Napier said.

He added that ‘as long as our investee companies continue to maintain solid balance sheets and invest at high rates of return with a long-term time horizon, then the outlook for MWY will remain positive.’

Lazard’s early mark

From October to 31 December – under Wilson and Florentin-Lee – NAV per share climbed 6.8% and the shares added 6.5% to narrowly beat the benchmark’s 6.3%. 

Extending the analysis to the end of February, NAV per share climbed 10.7% and the shares added 11%, trailing the benchmark’s 12.6%, Morningstar data shows.

Top performers up to December included Microsoft, which was already in the portfolio, and newly added companies – financial rating group S&P Global and Japanese animator Toei.

The worst performers included global insurer Aon, Canadian power sports equipment manufacturer BRP and Toyota Industries.

The duo expressed concern over the ‘exuberance surrounding AI’, which they feared could drive some stocks to unsustainable levels, so were pleased to see equity returns broaden to the wider market.

The pair believe the portfolio is well placed to weather continued volatility as the Federal Reserve and other central banks work out how to crush inflation without hurting economies.

‘For example, should interest rates rise, compounders should benefit as their “economic moats” widen and they continue to generate cash flow into the future,’ they said.

‘Should inflation persist, the competitive advantages of compounders should offer pricing power, allowing compounders to pass through higher costs and maintain margins.’