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.
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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