A good year for Mid Wynd International

Mid Wynd International (MWY) has announced its annual results for the year ended 30 June 2020, during which it has a good year of performance, comfortably outperforming its benchmark. During the year, MWY provided NAV and share price total returns of 12.2% and 9.1%, both of which exceed the equivalent 5.2% rise provided by the trust’s comparator index, the MSCI All Country World Index. Since Artemis’ appointment as Investment Manager on 1 May 2014, the net asset value per share has increased by 140.9%, on a total return basis, against the comparator index’s increase of 95.8%. The managers comments on performance are provided below.

Investment manager’s comments on performance

Global equities have enjoyed yet another year of positive returns despite the global pandemic and the recession stemming from lockdown measures taken to protect the public from the virus. The global equity market rise over the year has been dominated by US technology shares many of which have been selected in our Online Services and Screen Time themes, while the companies governments have turned to for healthcare solutions are also the world leaders we have selected in these themes, such as Roche and Thermo Fisher. Altogether the last year has allowed us to demonstrate how the fund protects capital when markets fell in the first quarter, also how our themes can sometimes come through more strongly when there are unexpected challenges to be faced.

Over the year, the Company’s share price rose from 568p to 612p up 7.7% and paid dividends of 6.85p giving a total return of 12.2%. This compares with the MSCI AC world index which rose 1.4% in US dollar terms, translating to a rise of 5.2% in Sterling terms. For the record, the UK All share index fell by 16.7% over the period.

Regional performance

Thematic performance

Current investment themes

Online Services (26% of the portfolio) – this theme led investment returns in the Company and many of our investments here have proved their worth to each of us over lockdown – especially amazon.com and last year we added an investment in JD.com which provides similar services in China. This theme has also benefitted from continued investment in the semiconductor industry with both Synopsys and Cadence seeing growth in demand for new chip designs.

The Company used its borrowing facility during the market falls in March to add new investments which benefitted from emerging trends, such as ServiceNow, a US company facilitating working from home and IT outsourcing and cloud computing and Salesforce.com which is the leader in databases to manage workforces.

Screen Time (9% of the portfolio) – again the lockdown has accelerated the trend towards spending more time in front of screen, especially working from home. The equity market continues to attribute low valuations to telecoms companies providing these connections, but such defensive holdings worked well protecting capital when markets fell in the first quarter.

Automation (13% of the portfolio) – the current recession is leading governments worldwide to encourage industrial investment and to engage in spending on public works. The rise in industrial automation demand now seems to be coming through, especially in Asia.

Emerging Market Consumer (10% of the portfolio) – We had moderated the size of the Company’s exposure to this theme, but falls in share prices during the lockdown have thrown up better value opportunities to invest for the longer term allowing us, for instance, to buy a holding in Hermes alongside our long term Louis Vuitton investment.

Healthcare Costs (11% of the portfolio) – although many of our selected investments are central to helping contain the pandemic, such as Roche the world leader in virus testing, much of this work will be done as a public service and for very low margins. Also, the chances of Mr Biden replacing Mr Trump as US President will raise concerns of pressure on US healthcare pricing, even if we see benefits from that change in other ways, such as a reduced likelihood of US-China trade wars.

Scientific Equipment (10% of the portfolio) – Investments in this area seem more likely to benefit from increased testing both for viruses and other human and animal health issues. The companies themselves have continued to grow through the crisis showing the merit of continued research and development of new products in past years.

Low Carbon World (7% of the portfolio) – This theme gave very strong returns over the year and some shareholders may be surprised that we have taken some profits. However, the very large ‘green’ initiatives being undertaken by governments currently are encouraging more competitors to enter the renewable energy area, some, such as oil majors, with large balance sheets but few relevant skills. This is bringing down returns on investment and the sell on values when fields are developed. Despite these factors, some of the better known shares in this area have become very fashionable and now trade on rather high multiples of future cash flows.

Fintech (8% of the portfolio) – During the year we recognized the accelerating development of digital solutions to financial services. Companies such as Mastercard and Visa have grown their share of our payments at the expense of the local bank branch and these branches increasingly need to automate their services. We invest very little of the Company in traditional banks as the challenges thrown up by ‘fintech’ offerings remind us of the challenges they face.

High Quality Assets (6% of the portfolio) – Our property holdings performed rather poorly again this year except for warehouse investments, despite bond yields falling again. We are concerned that the very high levels of government spending to try to create jobs after lockdown may take the world from its current disinflationary period into one of higher inflation and so we have invested in gold mines – the gold price already seems to be strengthening on this basis.

Discontinued themes – at the start of this reporting period we sold our remaining holdings in our Tourism theme. This proved fortuitous ahead of lockdown and we do not claim we foresaw the pandemic. However, our concerns about the scale of mass tourism worldwide and the security, biosecurity and environmental impacts were very much on our mind. We believe that travel will return, but that this theme will be constrained in future in ways it has not been in the past.

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