After a poor start to life, Menhaden seems to be rapidly on the path to recovery. Having had a new management team at the helm since April 2016, the team are now making good ground towards recovering the previous underperformance.
The team’s philosophy is very much valuation led, and they aim to identify durable companies with strong pricing power and very high barriers to entry. The portfolio is highly concentrated, and the team aim to remain invested for the long term. One of the overarching multi-decade themes that the managers recognise as being an important influence on future returns is that energy and resources need to be used more efficiently, and so most of the companies in the portfolio benefit from this theme in one way or another.
Using the advantages of the closed-ended structure, the managers invest in private as well as public markets. Over the past few months, it is the private investments that have been contributing strongly to returns. As it stands now, the trust’s two largest investments (together representing nearly 30% of NAV) are expected to complete transactions which will see nearly 25% of NAV converted into cash.
Elsewhere the public equities portfolio continues to evolve, reflecting the low turnover approach. The team has cut the Airbus holding in half, and recycled capital into a new position in Charter Communications, a business they believe is a classic Menhaden stock with high barriers to entry and a dominant market position at an attractive price.
Having lagged whilst the portfolio was being repositioned, the trust has slowly been catching up with world equity markets and the average global investment trust. It is worth noting that this is despite around half of the overseas currency exposure being hedged back into sterling. More recently, over September Menhaden’s NAV increased by 6.8% driven by the value increase of ADO Group, the trust’s second largest holding, whilst the MSCI was +0.9%. The shares trade on a discount of 20%.