A lack of exposure to US tech giants Apple and Nvidia sees Mid Wynd International’s (MWY ) outgoing lead manager Simon Edelsten bow out on a rare period of underperformance as Lazard prepares to take over from Artemis.

Artemis portfolio manager Edelsten has run the global equity trust since 2014, taking over from Baillie Gifford. He will hand over the reins to Lazard duo Barnaby Wilson and Louis Florentin-Lee in October.

The board of Mid Wynd appointed Lazards in June, four months after Edelsten announced he would be retiring at the end of the year and co-manager Alex Illingworth left Artemis. Illingworth has since moved to Chris Mills’ boutique Harwood Capital.

Edelsten’s final annual results with the global equities trust were a little disappointing as a 5.6% increase in the total underlying return in the year to 30 June fell short of the 11.3% return from the MSCI All Companies World index.

The lag in the benchmark was driven by a zero weighting to tech giants Apple and chipmaker and big artificial intelligence (AI) winner Nvidia.

Online services account for 17% of the portfolio and Edelsten said these stocks, which include Microsoft, Alphabet, Adobe and Amazon, performed well.

‘Having no exposure to just two stocks – Apple and Nvidia – accounted for nearly half the year’s underperformance relative to the comparator index,’ said Edelsten.

‘Our view is that this shows the benchmark has become worryingly concentrated, with just a few very large companies dominating total returns. We prefer to keep the portfolio more balanced than the comparator index.’

Edelsten (pictured above) said the past year is not a reflection of his team’s longer track record. He said over the past nine years ‘market conditions have been very good indeed and in the one moment of panic – the Covid outbreak in March 2020 – the portfolio’s resilience became apparent’. The portfolio has grown 192.6% under Artemis versus a rise of 160.2% in the benchmark.

In nearly a decade, the trust has grown from just £67m to £449m, with no gearing and ‘a year’s dividends available in reserves’, he said.

The trust proposed a final dividend of 3.95p per share, which is an increase of 8.3% on the full-year dividend and marked the fourth year in which distributions have exceeded inflation. Since 2019 the trust has seen its dividend rise from 5.83p  per share to 8.7p, an increase of 49%.

However, the combination of a challenging economic environment and the change of manager caused the trust’s share price to fall to a discount.

Chair Russell Napier noted there was ‘considerable pressure’ on trust discounts more generally but ‘Simon Edelsten’s departure and the ensuing change of investment manager may well have caused some investors to sell their shares’.

The board has a strict discount control policy to keep the share price within a band of plus or minus 2% to the net asset value. 

The discount has drifted outside the 2% mark this year and so the board has convened a general meeting for 8 September to increase its flexibility to buy back shares. 

However, Edelsten still believes he is handing over the portfolio in ‘rude health’, with several of its elements generating strong returns during the period. 

Automation, which is a fifth of the portfolio, performed well as China reopened, while digital finances, which is 7% of the fund, also enjoyed a positive year, particularly the fund’s small allocation to Japanese banks.

‘These companies benefit from persistent – in Japan’s case, reasonably modest – inflation,’ said Edelsten.

He said the digital finances theme includes stocks that are typically of lower value and is a ‘good balance’ to more expensive sectors, such as US technology.

In keeping with the performance of his themes, Edelsten bought Japanese banks and Rockwell Automation over the year and sold Elevance, one of the larger holdings in US medical insurance.