Zenith rates Magellan Global Equities Fund RECOMMENDED

The Magellan Global Equities Fund takes the highly successful unhedged global equities strategy implemented by Magellan Asset Management and offers access via units which are quoted on the ASX AQUA market (ASX:MGE). AQUA quoted units effectively trade in the same way as ASX listed securities. Although technically classified as an Exchange Traded Product (ETP) which are typically dominated by index strategies using ETF structures, MGE is structured as a Managed Fund (MF) which form part of the broader ETP classification by the ASX. As such, MGE offers access to an actively managed portfolio.

Typically, access to truly active strategies in a listed format is only possible via Listed Investment Companies (LIC’s) and while LIC’s offer certain structural advantages, they also suffer from the ability for shares to significantly trade away from their underlying asset value. MGE has employed the solution of undertaking a continuous market making function (similar to that utilised by ETFs), to create efficient pricing around the underlying portfolio asset value. This structure should ensure units trade close to their intrinsic value, however this remains to be borne out in live trading conditions.

Zenith’s View

Magellan employs a concentrated, benchmark unaware approach to investing in international equities, with the preservation of capital being a key tenet of the investment process. Having met with the team and reviewed the strategy and its process for many years, Zenith believes that the strategy is one of the higher quality offerings for global unhedged equities. Magellan’s investment process is premised on the belief that investment in high quality, lower volatility companies can enhance the downside protection of a portfolio, resulting in superior long-term risk-adjusted performance. Magellan undertakes a fundamental research effort in seeking to identify companies which exhibit sustainable competitive advantages and the ability to deliver returns on capital materially in excess of their cost of capital.

All stocks are scrutinised using bottom-up fundamental analysis with approval required from the IC prior to a security being considered for inclusion into Magellan’s portfolios. Company analysis involves a detailed due diligence process and extensive financial modelling to ensure that only high quality companies trading at a significant discount to intrinsic value are considered for the portfolio. In constructing the portfolio, management considers the global macroeconomic environment, with the intention of positioning the portfolio in sectors and regions that will likely benefit from prominent economic themes.

Zenith has a strong conviction in the team and see MGE as potentially an excellent way to allow smaller investors easier access to a highly regarded global equities strategy without having to rely on investment platforms, which tends to add another layer of fees. It also offers an alternative to the ASX’s mFunds platform which is still subject to potentially sizable investment minimums.