Mid Wynd International u-turns on Facebook… again

The Artemis fund managers running global investment trust have sold out of social media giant Facebook again, citing governance and valuation concerns.

Mid Wynd International (MWY) fund managers have changed their mind about social media behemoth Facebook (FB.O) yet again, citing ‘governance issues’ as their reason for selling their position.

Simon Edelsten, Alex Illingworth and Rosanna Burcheri, the team at Artemis Investment Management running the £247 million global portfolio, revealed in its annual report that they sold their holding in Facebook last December when they took profits on the stock.

This came shortly after the managers reinvested in the stock, seeking to tap into the trend of companies benefiting from the significant amount of time people spend looking at screens. This followed a slump in the share price in the wake of the Cambridge Analytica data scandal in March last year w. They had sold out four months before this broke.

Likewise they got rid of their holding in Google-owner Alphabet (GOOGL.O) in April.   

They exited both positions based on ‘governance issues’ and valuation concerns. US officials have launched probes into whether these big technology names have been abusing their market power.   

Edelsten said that though the trust adheres to a growth style, it is probably more defensively positioned than its peers. And while some would argue Facebook and Google do not currently fall into the camp of expensive online services stocks, he said both were facing regulatory pressures.

Tax scrutiny

As part of their valuation assessment, Edelsten said the managers asked if a company was ‘paying tax properly’.

‘If not we will calculate the impact on profitability and revenue of them eventually having to – they still have to be a good investment when competing on a level tax playing field,’ he said. 

Former chancellor Philip Hammond introduced a new digital services tax in his 2018 Budget last October, which will slap a levy on the likes of Facebook, Google and Amazon from April 2020.

‘We also adjust for the cost of share options issued to management instead of pay, which for some is very questionable’, he explained. ‘It often means our valuations are lower than others', but that doesn’t perturb us – there are plenty of good alternatives out there.’

Companies on more ‘acceptable valuations’ include Cadence (KDNC), in semiconductor design, and Equinix (EQIX.O), the world's largest data centre business, the fund manager said.

Solid healthcare

Despite volatility in healthcare stocks due to increasing discussion of drug pricing in the US, the Mid Wynd managers said the sector had a solid year.

The sector makes up the biggest portion of the investment trust, at 17%, and during the year the managers diversified within this theme by holding smaller amounts in health insurers and investing in drug companies with leading drugs, specifically in cancer immunotherapies.

‘We are generally wary of expensive new drugs, given the strains on health budgets, but these treatments may save the system costs: side-effects from chemotherapy often lead to significant post-cancer treatment for many patients,’ they said. ‘The immunotherapies seem to reduce after-care cost as well as leaving patients in much better shape.’

The trust’s property exposure continued to perform poorly during the year, as ‘few investors in Europe are confident that the high yields will continue to be paid’. However, the manager disagreed and ‘were prepared to wait for the evidence to appear’.

The managers took profits on the last of their investments in the ‘retiree spending power’ theme’

‘A number of investments in this theme had served us well over the years, but some became rather well known and the bulk of the demographic ageing in the wealthier west has now happened, leaving the tailwind a little weaker going forward,’ they said.

Five years at the helm

This year marked Artemis’ fifth at the helm of Mid Wynd, having taken over from Baillie Gifford in 2014, as well as the trust’s 70th anniversary.

During Artemis’ time as manager, Mid Wynd’s net asset value (NAV) has risen by 115%, against an 86% increase in the benchmark.

The trust outperformed in the year to the end of June, with an NAV return of 11% and a 15% increase in share price, versus a 10% rise in the MSCI All Country World index. Dividends of 5.83p per share rose 5% on the 5.55p paid in the previous year.

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