Run your winners is an old investment cliché. And that’s not how the managers of the Mid Wynd International Investment Trust see it too.
The team at Artemis that manages the trust judge an investment using criteria based largely on cashflow and valuation.
It is also why recently the trust has been selling down its holding in online giant Amazon to invest in what, from the UK, might seem to be obscure Japanese manufacturers of factory automation equipment.
Simon Edelsten, the trust’s lead manager, points out that one of these companies, Daifuku, is worth £6billion, but admits that even some Japanese fund managers haven’t heard of it.
Automation: The trust invests in robots, whose cost is falling rapidly – to the point that in places like China it is cheaper to buy a robot than employ a specialist welder
This is part of the joy of what he does, he says, namely finding a good growth theme and looking for companies that fit it.
‘That takes you into parts of the market that are not mainstream.’
It also means that the portfolio will be ‘completely different’ from the benchmark index most of the time.
Neatly, that brings us back to the automation theme. Edelsten has been keeping an eye on automation/robot progress for a number of years, but two things have changed recently to persuade him to invest.
First, the cost of robots is falling rapidly, to the point in places, notably China, where it is cheaper to buy a robot than employ a specialist welder.
This shift to building machine-only factories rather than using workers in emerging markets is significant.
Mid Wynd at a Glance
Share price: 470p
Year high: 471p
Robots are also becoming much more versatile and can handle not just heavy lifting type jobs but light touch and sensitive work, too.
An automated solution means a better quality of product than a semi-automated plant believes Edelsten, even though we might not want to admit it.
Japanese companies almost exclusively make the parts that give factory robots the ability for light touch work but they sell on cashflow multiples that are a fraction of US companies such as Amazon.
There is a currency element and the Japanese dominance of the market means he has to keep an eye of how big a portion the automators are within the fund, but those issues aside this is a theme that can run for many years.
Mid Wynd is named after a street in Dundee and is a trust based on themes.
Typically there are eight to 10 ideas – automation, online services, healthcare costs, emerging market consumer, bank regulation and others are among the current crop. Edelsten looks for the best value based on its methodology within these.
Amazon was part of its online services theme and has been a superb performer for the trust since it was acquired when Artemis took over the management from Baillie Gifford in 2014.
‘Up by around 150 per cent,’ suggests Edelsten, though that’s not the point he, adds.
For an online business, it is becoming capital intensive, especially following the recent acquisition of Whole Foods.
The trust has been selling down its stake in Amazon because it is becoming capital intensive for an online business, especially after its acquisition of Whole Foods
He points to online travel operator Priceline.com as a comparison. It sells on a cashflow multiple two-thirds that of Amazon, yet has nowhere near the capital needs.
Mid Wynd is part of the Global Trust sector, arguably the Premier League of the investment trust world and inhabited by giants such as Scottish Mortgage, Alliance Trust and Foreign & Colonial.
At 472p, Mid Wynd is currently worth £166million, modest compared to the multi-billion pound values attached to those rivals, but its performance has more than matched its peers.
Since 2014, net asset value (NAV) each year to September has risen by 17 per cent, 27 per cent and 16 per cent while the share price has risen by 70p or 17 per cent in the past twelve months.
Indeed, demand is such that Mid Wynd has issued more shares to stop the premium to asset value (1.28 per cent) becoming too large. A placing in May raised just shy of £6million and is part of a process to reduce any bumps in the event the market does have a wobble.
A large premium might be affected even if net asset value isn’t, he says.
Mid Wynd has no debt and Edelsten sees no need for any nor, indeed, for it to be as aggressive as some of its peers, where some have been buying non-listed companies to boost performance. That’s not for Mid Wynd, says Edelsten.
‘We want to be on the right side of the curve in the event of market turbulence. We are only a little fund and there are plenty of stocks.’