Majedie

Improving performance in 2020 and a historically wide discount that values the holding in MAM at zero offer an attractive entry point...

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Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Majedie. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Majedie

Majedie Investments (MAJE) is a very broadly diversified, self-managed investment trust offering exposure to a range of equity strategies – managed by Majedie Asset Management (MAM).

MAM, which manages assets of c.£8.5bn, was appointed to manage MAJE’s assets in 2014 and the trust retains a 17.2% stake in the asset management company itself, which currently represents 21% of NAV – a comparable situation to that of Lindsell Train, which is perhaps better known among retail investors. As we discuss in the Portfolio section, MAM recently adopted a new valuation policy for the asset management company based on current-year earnings to enhance disclosure.

In addition to its holding in MAM, the portfolio is split across six funds offering very broad diversification. Predominantly this is via equities, but it includes an element of absolute return/capital protection via the Majedie Tortoise Fund. For all of these underlying funds the investment process is based on fundamental, bottom-up research and aims to deliver consistent long-term returns. The managers are all ‘stock-pickers’ who are not afraid to be contrarian, and they are flexible, without rigid stylistic biases, resulting in a portfolio unlike others in the sector.

In recent years, the approach has the led the trust to being overweight towards the UK relative to peers in the global sector, with a slant toward value. However, recent market volatility has created opportunities for the managers to invest in high-quality companies at attractive valuations, and the performance of many of the individual funds has improved over the last nine months.

The trust is trading at a historically wide discount of c.24% and an attractive yield of 6% and significant reserves.

Kepler View

This year has seen the managers at MAJE capitalise upon the instability in markets, which leaves them poised for a turnaround in their performance after a period of subdued returns resulting from the trust’s tilt toward UK equities and out-of-favour value stocks.

The managers say recent market dislocation has created an opportunity to find quality companies at cheaper valuations, and to add more growth-orientated companies. The end result has been improved performance across many of the individual funds. The UK portfolio has now outperformed its benchmark over the past 12 months, and the MAM Global Equity Fund continues to achieve first-quartile performance. The recently launched MAM International Fund has also got off to a strong start.

Another noteworthy point is the trust’s holding in MAM. The board has improved the disclosure of MAM and the valuation is now based on the most recent quarter’s earnings, public market P/E multiples (discounted by 20%) and surplus cash held on the balance sheet. Should we see the performance of the trust and constituent funds continue to improve, we could see a ‘double whammy’ in terms of performance thanks to further valuation uplifts.

An additional attractive feature of the trust is that the dividend yield is the highest in the sector and covered 4x by revenue reserves. These substantial reserves should appeal to income-reliant investors in the light of the current dividend drought.

Bull bear
Wide discount in absolute and relative terms Poor short-term performance record
The trust's holding in MAM - the trust's own asset management company - could benefit from upwards revision of the valuation, which is quite conservative Gearing can increase the volatility of the trust
Offers exposure to highly regarded funds which are otherwise inaccessible to private investors
William Sobczak
William joined Kepler Partners in February 2018 as an investment trust analyst. Prior to joining, William graduated from the University of Western Australia, with a BSc in Psychology.

Fund History

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This report has been issued by Kepler Partners LLP.  The analyst who has prepared this report is aware that Kepler Partners LLP has a relationship with the company covered in this report and/or a conflict of interest which may impair the objectivity of the research.

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