Majedie Investments (MAJE), the £146m absolute return fund, outperformed its target of inflation plus 4% in the year to 30 September, capping off a successful first three years under fund manager Marylebone Partners.
The investment trust delivered an 8.2% underlying investment return from its funds and shares portfolio, 4.4% above the consumer prices index although strictly speaking the CPI+4% is an average annual goal it seeks to achieve over five-year periods.
The annual return was down from the 21.5% Majedie made in the previous financial year but leaves the company with an underlying 9.9% annualised gain since Marylebone replaced Majedie Asset Management in January 2023 after MAM’s sale to Liontrust (LIO).
Over that period total shareholder returns have been 14.2%, the higher figure reflecting an improved rating for the shares which stood 30% below net asset value before Marylebone was appointed in late 2022. The discount that has now narrowed to 9%.
Safety margin
Chair Christopher Getley said the good performance – with the shares currently up 63% over three years – gave the board confidence in Marylebone’s “liquid endowment” strategy would deliver the target returns over the long term.
Led by founder and chief investment officer Dan Higgins, Marylebone assembles high conviction investments that stand out from the broader stock market and avoids illiquid, or hard-to-sell, positions in private equity.
Reiterating the chair’s positive outlook, Higgins said; “The largest constituents of major indices appear expensive and, in our judgement, offer little margin of safety. A generation of investors has grown accustomed to capital gains from the S&P 500 and private equity, sees the US dollar as a one-way trade, and government bonds, or par credit, as dependable sources of income and protection. Many portfolios are thus heavily concentrated in these familiar areas.
“By contrast, the assets the investment team finds most attractive remain largely absent from mainstream allocations. Years of under-investment have created scarcity and, with it, the opportunity for greater returns.”
Europe and China fund gains
Marylebone divides the Majedie portfolio into three buckets: the largest, accounting for 63% of net assets, is invested in specialist third-party funds, with 17% in direct equity investments in companies and a further 16% in special listed situations where it co-invests with an “idea sponsor”. Geographically, these were split 38% to North America, 34 Europe, 13% emerging markets and 6% Japan.
The funds portfolio generated the bulk of the overall return in the year. The 58% of this portion held in equity funds provided 6.08% of the company’s gross performance, helped by the Europe-focused Helikon Long Short Equity Fund, China specialist Perseverance DXF Value Feeder Fund, international value fund Briarwood Capital and Japan-Up Fund, a small and mid‑cap activist run by Strategic Capital.
The six absolute-return funds making up most of the rest of this bucket contributed 3.1% to the total gross return with Contrarian Emerging Markets Offshore Fund doing the best from its exposure to various Latin American distressed investments.
Direct investments had a flat year with gains from the Global X Copper Miners ETF, UK mid-caps Weir Group, IMI and Computacenter with US-listed SS&C Technologies offset by falls in Evolent Health, KBR and Basic-Fit NV, which were all sold.
Special investments did better, adding nearly 1% from a uranium project and investments in Brazilian waste management company Orizon, CVS Health in the US, Bank of Cyprus and UK-listed Oxford BioMedica (OXB).
Following Marylebone’s acquisition by Brown Advisory in June, the fund manager’s fees – which are shareholder friendly by being based on market value not NAV – were cut. This helped to lower ongoing charges to 1.3%, down from 1.4% and 1.6% in the previous two years.
The repayment of a £20.7m secured loan charging 7.25% interest and replacement with a £15m credit facility also helped bear down on costs.
Our view
James Carthew, head of investment company research at QuotedData, said: “This was another decent year for Majedie; its three-year numbers, which cover the period since Marylebone was appointed, are looking particularly good. The attraction – as for many of its peers – is a portfolio that has a very different composition to global equity indices. These flexible investment trusts make good diversifiers from US, AI-related, mega-cap stocks.”
