All change at Mid Wynd – or is it?
Mid Wynd International Investment Trust has moved the investment management mandate from Artemis to Lazard Asset Management. What does that mean for investors?
Taking on a high-profile investment trust is quite a responsibility and one we take seriously. Investors bought into a process and a management team. So, has everything changed at Mid Wynd?
The short answer is “no”. But let’s look in a little detail at what will continue, how things will differ, and most importantly, what difference that might make to investors’ returns.
In the decade that Artemis managed Mid Wynd, it had a focus on quality. It sought to protect investors from downside risk, in part by not paying too much for stocks. And it was global.
All of that will remain the same under our stewardship, especially the focus on quality, albeit with our own interpretation. We have a clear understanding of what we mean by quality: companies we believe have high levels of financial productivity that continue into the future. Our approach, tested over a decade in the institutional investment arena, is to invest in what we perceive to be great businesses that we believe will generate high returns on capital and reinvest back into the business at similar returns to drive future growth. We call these companies “compounders” because, over time, their cash flows compound.
Resilience is one the attractions of compounders. We believe they tend to perform well in uncertain environments, like today’s, because they have barriers to competition. This may provide them with pricing power, and therefore potentially the ability to maintain profit margins despite inflation-led cost pressures. They can generate enough capital so that they can reinvest for growth, and they tend not to have big debts, which means high interest rates may not hurt them.
“While much will remain similar to the Artemis approach, there will be some key changes.”
Louis Florentin-Lee, co-manager of the Mid Wynd International Investment Trust
Like our predecessors, we pay close attention to the price we pay for a share. The share price reflects how long the market believes that competitive advantage will endure till it begins to fade. Economic theory suggests that no company can maintain its competitive advantage for too long, because those high returns will attract competitors. We become interested in a potential investment when our research indicates that a company’s advantage is entrenched but the market is underestimating it. In our experience, compounders can sustain their barriers to competition and return on capital for longer than the market expects. When compounders “beat the fade” we believe they can also “beat the market”.
The consequence of all this is that we try to buy at the right price and hold for a long time to let the power of compounding returns do their job for investors. We have a concentrated portfolio – just 40-50 stocks – and a very low turnover. Typically, we expect to hold companies for six to seven years on average.
While much will remain similar to the Artemis approach, there will be some key changes. Under Artemis, the Mid Wynd portfolio was run on a thematic basis. We manage through bottom-up stock selection and not by themes. Also, one of the ways we bring diversification to the portfolio is by looking at the competitive advantages that underpin a company’s success. This might be a strong brand, being a leader in a niche industry, benefiting from regulatory barriers, or having a leading technology. We aim to ensure the portfolio has a blend of these different strengths or “sources of quality”.
Of course, what matters most is that the process delivers results. Our investment strategy has outperformed the market since its launch in February 2011. In addition, it has, on average, performed better than the market when the market has fallen and outperformed in rising markets.
It is an honour to manage this trust. It is one we take seriously as we seek to achieve positive long-term returns for our investors. We believe we have the right strategy to do that.
Past performance is not a reliable indicator of future returns and does not guarantee future results