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Should you invest in Magellan’s new High Conviction Trust?

Sebastian Bowen
question

Magellan Financial Group Ltd (ASX: MFG) announced this week that it will launch an ASX listed investment trust (LIT) vehicle for its successful ‘high conviction’ strategy, with offers opening on August 21. Until now, this strategy was only available through Magellan’s unlisted High Conviction Fund – a managed fund which requires a minimum investment of $10,000.

When it lists on the ASX, the Magellan High Conviction Trust (its ticker will be MHH) will only require a minimum investment of $500 (the minimum purchase parcel for ASX shares). So is Magellan’s new trust worthy of an investment? Let’s take a look

What is Magellan’s High Conviction strategy?

According to Magellan, the High Conviction strategy is a “concentrated portfolio of high-quality global companies weighted towards Magellan’s highest conviction ideas.” The new trust will hold between 8 and 12 global companies, have a cash allowance of up to 50% and target a cash distribution of 3%, paid semi-annually. It will also have the ability to hedge against currency fluctuations on a flexible basis.

It’s worth noting if you are already a shareholder in Magellan or own units of the High Conviction Fund or Magellan Global Trust (ASX: MGG), you are eligible for the ‘priority offer’ where you can get a bonus 7.5% worth of MHH shares on your original investment – a perk worthy of consideration.

The High Conviction Fund’s current portfolio (as of June 30) includes Alphabet (Google), Apple, Berkshire Hathaway, Facebook, HCA Healthcare, LVMH, Microsoft, SAP, Visa and Starbucks with a cash position of 8%. This portfolio is what you can reasonably expect MHH to have upon launching.

Should you invest?

Magellan has demonstrated it knows how to pick good-quality stocks, so the fact that MHH will be weighted toward “Magellan’s highest conviction ideas” is a positive for me. Magellan’s High Conviction Fund has returned a performance of 16.6% since its inception in July 2013, which is also encouraging. This help ease my worry over the relatively high management fee of 1.5% that MHH will charge, on top of a 10% performance fee on excess returns.

Foolish takeaway

From my perspective, there is a lot to like about Magellan’s new High Conviction Trust. It follows a proven strategy that has delivered outperformance since its inception. Although it charges a relatively high fee, the flexibility of its mandate will allow the fund to adapt to changing market conditions in a nimble way, which is another bonus. All in all, you could certainly do a lot worse than this one.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Sebastian Bowen owns shares of Facebook. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Facebook. The Motley Fool Australia has recommended Facebook. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019