Magellan Global Fund Open Class: Investment process focuses on high quality, liquid companies

Investment Objective

The investment objectives of the Fund are to achieve attractive risk-adjusted returns over the medium to long-term, while reducing the risk of permanent capital loss.

Investment Process

The investment objective of the strategy is two-fold:

Achieve attractive risk adjusted returns over the medium to long-term (translates to 9% p.a. net of fees long-term target)
Minimise the risk of permanent capital loss (downside protection)

The Magellan Global Fund aims to invest in ‘outstanding companies’ at attractive prices, while also managing investment risk through a comprehensive understanding of the macroeconomic and broader environment. ‘Outstanding’ in this context refers to companies that are able to “sustainably exploit competitive advantages in order to continually earn returns on capital that are materially in excess of their cost of capital.” As such, the Fund is not deterred by companies that may be perceived as trading expensively (e.g. at high multiples), so long as their underlying businesses are outstanding, and share prices are assessed to be trading at a discount to intrinsic value.

The investment team assesses each stock via five quality criteria (economic moat, re-investment potential, business risks, agency risks, and ESG factors). This analysis reduces the universe to around 300 stocks which then undergo detailed bottom-up analysis. The team discusses the results to determine stocks that will be recommended to the investment committee. Investments will need to have a margin of safety (discount to intrinsic value) to enter the portfolio.

The stringent quality criteria result in a concentration in global franchises, information technology, global infrastructure and niche financial services companies. Analysts build discounted cash flow models to determine the intrinsic value of each company. A “conviction scoring matrix” is also used to ensure that each company is consistently evaluated both relative to peers and on a standalone basis.

Portfolio

Investment Team

In February 2022, CIO and Lead Portfolio Manager Hamish Douglass took, effective immediately, a medical leave of absence for personal reasons and mental health issues. It is important to note, the Company does expect Mr Douglass to return in due course when he is healthy to return.

In June 2022, the Manager announced that Mr. Douglass will cease to be a permanent member of Magellan’s staff on 15 June 2022 and will commence the consultancy role on 1 October 2022. Mr. Douglass will be available to the investment team, as required by them, to share his insights including his views on macroeconomic and geo-political matters.

In the interim, Chris Mackay (Magellan’s co-founder) will step in and oversee the portfolio management of Magellan’s global equity retail funds and global equity institutional mandates. Chris is a highly experienced Portfolio Manager with a solid track record in global equities. Further, Nikki Thomas has re-joined Magellan as a Co-portfolio manager of Magellan’s global equity strategies. Nikki was due to commence in March however due to this announcement, she agreed to start 7th February. Nikki is a highly regarded Portfolio Manager with over 20 years of experience in the management of global equity portfolios. Nikki was instrumental in the development of the Magellan investment team’s processes in 2006, and she has a deep knowledge of Magellan’s investment universe. Her experience and relationships with investment advisers and consultants will add further depth to the investment team. Chris Mackay will be working with Deputy CIO Dom Giuliano, Nikki Thomas, Arvid Streimann and Chris Wheldon in respect of the co-management of the global equity and high conviction retail funds and institutional mandates.

Fund Performance and Positioning

About Fund:

The Magellan Global Fund (Unhedged) is a concentrated, currency unhedged, benchmark unaware international equities strategy that typically contains 20-40 stocks. The objectives are capital preservation and reduction of downside volatility risk, while having a minimum return objective of 9% p.a. (net of fees).

(Source: Banyantree)

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