Mid Wynd just fails to match MSCI AC World Index – for the year ended 30 June 2017 the NAV total return was 21.0% compared with the index return of 22.2%. The total dividend for the year of 5.00 pence per share represents an increase of 11.1% on the 4.50 pence per share paid in respect of the year ended 30 June 2016.
The managers’ approach is a thematic one. They break down the portfolio accordingly:
“Online Services (21.6% of the portfolio) – The very high growth in revenues from internet based businesses continued to drive share prices, especially against a background of decent economic support for traditional businesses. We have a broad spread of modestly sized holdings because each investment in this area has challenges – competitors for the smaller companies, monopoly regulators for the larger. Also, all these investments are challenging to value as the longer term capital expenditure required to keep them competitive is hard to assess accurately. Furthermore, our valuation process identifies some companies in this area as much more attractive than others. Due to our valuation approach, we sold one of the Company’s largest investments, Amazon.com, close to year end, in part because we doubt that its acquisition of Whole Foods Market will enhance the company’s growth prospects or margins.
Emerging Market Consumer (14.6% of the portfolio) – Our exposure to emerging markets worked well. LVMH had an exceptional year of growth and its shares have risen sharply and it has become one of the Company’s largest investments. Our investments in China also continue to prosper and some of those who foretold a collapse in that economy now seem somewhat quiet. We have, however, taken some profits here.
Tourism (15.4% of the portfolio) – Tourism numbers rose strongly, especially in Asia. Dufry, the world’s leading duty free company, performed well, as did Samsonite, a travel luggage company.
Media Content (12.8% of the portfolio) – Our media investments had a better year, with Time Warner agreeing to merge with AT&T. Disney, however, saw further subscribers leave its ESPN subscription sports channel. It seems as though new entrants, such as Netflix, are offering such a volume of quality programming at lower prices that traditional media is under pressure – as long as Netflix shareholders are content to fund the company without seeing any profits.
Healthcare Costs (10.7% of the portfolio) – We have positioned our portfolio towards companies which should cope well with changes in American healthcare. Our larger holdings in private health insurers in the USA are well placed to procure high quality care at economic rates and these companies have performed well over the year.
Scientific Equipment (8.0% of the portfolio) – This theme showed steady growth and strong cash generation. The most recent financial statements from this group are very encouraging for the year ahead.
Retiree Spending Power (4.3% of the portfolio) – This theme had a patchy year. Our investments in sports shoes saw high competition and we sold our holding in Asics, which also had to contend with a strong Yen, making exporting difficult.
Bank Regulation (6.2% of the portfolio) – We invested in a number of US banks in the summer of 2016. At that time their valuations appeared very modest, they seemed to be ahead of the capital requirements of regulators and there were prospects of improved lending margins as the US economy improved. The election of Donald Trump led investors to anticipate a reflationary environment and we took some profits in bank holdings which had performed strongly at that time. Since then, President Trump has moved to lighten regulations, but the improvement in borrowing demand has not appeared.
High Quality Assets (6.2% of the portfolio) – This part of the portfolio contains a number of property companies. These performed poorly when markets anticipated interest rates would rise. We look forward to adding to these holdings as attractive dividend yields reappear.
Energy in a Gas Glut (0.0% of the portfolio) – The election of Donald Trump marked a reverse in America’s policy towards climate change. Many US states, such as California, will continue to head towards a more fuel efficient environment. However, the US decision to walk away from the Paris climate accord reduces the momentum for this theme so we have sold our holdings.”
Five largest stock contributors to performance
Contribution
Company Theme %
LVMH Emerging Market Consumer 1.4
Charles Schwab Online Services 1.1
Amazon.com Online Services 1.0
Time Warner Media Content 0.9
Mastercard Online Services 0.9
Five largest stock detractors to performance
Contribution
Company Theme %
DeNA Media Content (0.5)
China Mobile Online Services (0.3)
Publicis Groupe Media Content (0.3)
Continental Resources Energy in a Gas Glut (0.2)
Capital One Financial Bank Regulation (0.2)
MWY : Mid Wynd just fails to match MSCI AC World Index