Majedie proves US mega-caps and AI aren't the only route to returns

The latest run of strong performance at Majedie Investments (MAJE) has topped off a positive first three years with Marylebone Partners at the helm.

The £161m absolute return trust reported a net asset value (NAV) total return of 8.2% for the year to end of September and a total shareholder return of 12.9%, against a target of consumer price index (CPI) plus 4% over a rolling five-year period.

Returns have slowed since the previous year when the NAV was up 21.5% and the shares gained 24.1%, but it has not thrown three-year performance off track, which covers the period when Marylebone Partners took over following Majedie Asset Management’s sale to Liontrust. Marylebone has since been taken over by Brown Advisory.

Since 2023, the trust has delivered an underlying 9.9% annualised gain and the shares have re-rated from a discount of 30% to 9.4%.

The portfolio is made up of three types of investment, the largest of which is external managers at 63%, followed by direct investments at 17%, and special investments at 16%.

External managers contributed 600 basis points (bps) of returns despite ‘minimal exposure to artificial intelligence (AI)-related mega-cap stocks listed in the US’, said manager Dan Higgins.

He said each fund added to the trust operates in a distinct area and with high conviction.

Over the year two new equity managers were added in Niatross Asia Opportunities and Brown Advisory Global Focus, and absolute return GQS Credit Multi-Asset fund was exited.

Higgins set out to identify ‘long-only pan-Asian’ equity managers to complement his other funds in the region and settled on Niatross, which focuses on Japan, Korea, Hong Kong Singapore, and Australia.

He said Niatross has a ‘fundamental, patient and value oriented’ investment approach with ‘an almost obsessive emphasis on avoiding loss in individual positions, even under bear-case scenarios’.

The direct investments portion of the fund was flat over the year due to its ‘deliberate tilt towards international markets and away from US-listed momentum stocks’, said Higgins.

The Global X Copper Miners exchange traded fund (ETF) was the best performer as demand for copper strengthened amid growing electrification and infrastructure demand and a supply slowdown due to production disruption.

Three UK-listed companies added to MAJE’s gains, with Weir, IMI and Computacenter all up throughout the year.

Higgins said Weir had ‘transformed into a high-quality mining equipment company from what was previously a low-quality oil play’.

‘An overlooked beneficiary of the global energy transition from fossil fuels to electrification, Weir should capitalise on structural demand growth from this long-running process, while the mining capex cycle is close to a positive inflection point,’ he said.

Special investments were up nearly 1% thanks primarily to a uranium project investment despite ‘price volatility’ and uncertainty around outcomes.

However, Higgins said ‘demand is rising with the US administration now targeting a four-fold increase in nuclear capacity by 2030’.

‘With limited incremental supply, long-term contracts are likely to be priced higher,’ he added.

Orizon, Brazil’s largest waste management company, also climbed higher and there is the expectation ‘of significant profit growth potential as landfills mature and the company contracts additional revenues, notably in biomethane and carbon credits’.

Higgins added four new special investments over the year, including a litigation finance opportunity, investment in the Bank of Cyprus, and investment in Oxford BioMedica.

He also took part in JB Investments’ first special purpose vehicle in five years, which is investing in ‘equities within a cyclical industry in China undergoing a structural change’.

‘This follows a pattern that has delivered exceptional returns for JB previously: uneconomic overcapacity will be removed from the industry by bankruptcies or forced closures, resulting in a sharp subsequent rebound in selling prices,’ said Higgins.

The focus on esoteric investments plays into Higgins ‘circumspect view of broader markets’.

He said the largest stocks in global indices ‘appear expensive, and in our judgement, offer little margin of safety’.

‘A generation of investors has grown accustomed to capital gains from the S&P 500 and private equity, sees the US dollar as a one-way trade, and government bonds, or par credit, as dependable sources of income and protection,’ he said.

This has left many portfolio heavily concentrated in these areas but the assets MAJE finds most attractive ‘remain largely absent from mainstream allocations’.

‘Years of under-investment have created scarcity and, with it, the opportunity for greater returns,’ he said.