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18. Uncovering Trusts – Martin Currie Global Portfolio Trust (MNP)
42 Plays15 days ago
In this episode, our director of content, investment trusts Milosz Papst delves into the Martin Currie Global Portfolio Trust (MNP) and its global high-conviction portfolio of quality growth companies. He explains the trust’s bottom-up three-stage investment process and how it translates into distinct portfolio characteristics and performance compared to its benchmark. He elaborates on the three important growth trends identified by the manager. He also discusses the trust’s recently published results for the six-months ending July 2024, including major positive and negative performance contributors. Finally, he talks about the company’s zero-discount policy.
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About ‘Uncovering Trusts’
'Uncovering Trusts': is a podcast run by Edison analysts released every two weeks. Subscribe to hear analyst interviews on how investment trusts maximise returns while managing risks for investors.
About Edison:
Edison is a content-led IR business. We believe quality investment content should inform all investors, not just brokers. Our mission: engage and build bigger, better-informed investor audiences for our clients.
Edison covers 50+ investment trusts, read about them here: https://www.edisongroup.com/equities/investment-companies/
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Transcript
00:00:05
Speaker
Welcome to Uncovering Trusts, a podcast by the Edison Group, a content-led IR business integrating analyst content, digital targeting, and investor engagement. Each episode will uncover the distinct features and latest developments of a selected listed investment company. So tune in to find interesting investment ideas and stay on top of what is happening in the investment company sector.
00:00:28
Speaker
I'm your host, Will Manuel. Today I'm joined by Milos Pabst, Director of Investment Company Content at the Edison Group. We'll talk about Martin Curry Global Portfolio Trust, whose ticker is MNP. Milos, thanks for joining us today. Hi, Will. Thanks. Good to be here. Great. So, shall we begin by focusing on a high-level look at MNP?
00:00:51
Speaker
Yeah, sure, good idea. Just to provide some background, um since July 2020, Martin Carrey has been at the division of Franklin Templeton Investments, which is a major US company with more than one and a half trillion dollars of assets under the management following the acquisition of its former parent, Lech Mason. However, it is important to understand that Martin Carrey has maintained its autonomy and its investment philosophy and processes remain unchanged.
00:01:19
Speaker
The trust was launched in March 1999 and since October 2018 has been managed by Zegrit Osmani, who is head of Martin Carey's global long-term unconstrained investment team. He aims to generate a total return in excess of the total return of the MSCA AC World Index.
00:01:37
Speaker
He runs a high conviction portfolio of 25 to 40 high quality global growth companies with superior share price appreciation potential based on projected return on invested capital, balance sheet strength, and sustainable business models. I would also note that the trust has been awarded the highest available five globes for its Morningstar sustainability rating, which evaluates the trust portfolio environmental, social, and governance risks versus those of its peers.
00:02:06
Speaker
Okay, so now would be a good time to focus on the investment process, which I understand is a big part of the and and MNP story. Yeah, so Osmani has an unconstrained approach and invests with the long-term five to 10-year horizon. um He employs a systematic bottom-up three-step investment process. Stage one is idea generation, where the universe of around 2,800 listed global stocks is screened down to a research pipeline of around 90 names, aiming to identify companies with a combination of quality, ah sustainable growth, and an attractive valuation.
00:02:41
Speaker
The manager believes that companies that can generate a high and sustainable return on invested capital above their weighted average cost of capital can generate above average long-term total returns. Stage two is fundamental analysis, which is based on eight key criteria. Industry analysis, a company's growth drivers, returns, financial strength, accounting,
00:03:02
Speaker
corporate ethos, ESG profile and valuation. Businesses are assessed on a scale of one, um lowest risk to five, highest risk across a wide range of measures. As part of the process, there is an in-depth systematic risk assessment focusing on industry risks, company risks, governance and sustainability and portfolio risks.
00:03:23
Speaker
FEMs consider to include in the portfolio are likely to have a dominant position and pricing power in the market with high barriers to entry. um To ensure a consistent approach, a proprietary research template is compiled for companies reviewed and each is given a conviction rating between one, strong buy, and five, sell. Stage 3 is portfolio construction.
00:03:43
Speaker
Each position is weighted appropriately, aiming to ensure um meaningful contribution to the fund's returns. The portfolio is broken down by geographic revenue and profits rather than where a company is listed to understand the fund's exposure by economic value.
00:03:58
Speaker
ah The portfolio is also assessed in terms of end-user exposure at the tier 1 level, the consumer, business and government, and then at the more detailed tier 2 level, focusing on individual sectors and industries. Stocks may be sold when they have reached or are nearing their price target, there are better risk-reward opportunities elsewhere, or if the high conviction investment case no longer holds true.
00:04:21
Speaker
Okay, so now we understand the process. How does the resulting portfolio compare with the benchmark? h Versus the MSEI-AC World Index in aggregate, um the trust holdings have higher forecast revenue, earnings, free cash flow and dividend growth, um higher valuations in terms of forward PE and EBITDA multiples, higher return on invested capital and less leverage based on net debt EBITDA.
00:04:46
Speaker
These relative metrics reflect the trust's biases towards growth and high-quality companies with pricing power. Okay, understood. So, shall we move on to talk about the structure of the portfolio?
00:04:57
Speaker
Osmani and his team have identified three important growth trends that they believe will be in place for many years to come. ah These are the future of technology, resource scarcity, and demographic changes. Within these broad trends, um important themes represented in the fund are the growth in AI, the energy transition, and an aging global population.
00:05:18
Speaker
Focusing on the first theme, NVIDIA is widely considered to be a major AI beneficiary. um It is the trust's largest holding, but it's not a new position, as it has been in the portfolio since 2021. Other holdings that play into the AI theme include ASML Holdings and BE Semiconductor Industries.
00:05:36
Speaker
The manager's unconstrained approach is illustrated by M&P's geographic and sector weightings. There is a notable underweight US exposure, despite this country's dominance in global indices. The largest sector overweight by a white margin is healthcare, and there is also a meaningful underweight exposure to financial stocks. so Four of the 11 market sectors are not represented in the portfolio as ah these stocks do not have the quality growth attributes that the manager seeks. These sectors include communication services, energy, real estate and utilities. Thank you. So could you provide some colour on the Trust's performance track record?
00:06:13
Speaker
Sure. Prior to his money becoming the Trust's lead manager in 2018, the Trust's performance was somewhat lackluster. The adoption of a more disciplined investment approach made a real positive difference to M&P's relative performance. um However, in 2022, growth stocks came under pressure in an environment of rising interest rates as central banks sought to combat higher inflation.
00:06:37
Speaker
Growth stocks remained out of favor as some persistent inflation meant lower interest rates were slower to come through. Also, head care stocks were used as a source of funds as investors chased megacap US technology stocks and Chinese economic weakness affected the luxury goods sector.
00:06:53
Speaker
Sveni considers this period as a bump in the road for MMP's relative performance, and he has a high degree of confidence in the upside potential of the trust investing companies. And now that investors are refocusing on the company fundamentals rather than macroeconomic events, the manager is anticipating an improvement ah in MMP's relative performance. Okay, so I see that MMP's first half 2025 report has just been released. What did we learn from it?
00:07:19
Speaker
This is for the six months to the end of July 2024, during which the Trust's performance lacked debt of the benchmark, was money reiterated this long-term investment approach, acknowledging that short-term results can be volatile. During H1 2025, the AI theme was again dominant in the market, but there was a wide dispersion of returns within the magnificent seven stocks.
00:07:41
Speaker
which are the seven megacap US s companies seen as major AI beneficiaries. Both the top for performer in video, whose share price increased by 89% during the period, and the worst performing Microsoft share price up 5% are in M&P's portfolio.
00:07:57
Speaker
Not surprisingly, NVIDIA was the trust's largest positive performance contributor in age 125, as it once again beat consensus estimates and raised guidance. The two other largest positive contributors were Ferrari, which has pricing power in the market where demand exceeds supply, and MATLAB Toledo, which has resolved its supply issues and has a well-received new product offering.
00:08:19
Speaker
Conversely, the biggest detractors to M&P's performance in the period were Estelauda, due to excess inventories and pockets of weak demand. Sartory Steadim, which reduced guidance about whose long-term outlook remains intact. And Illumina, which has been working through a difficult and unpopular corporate transaction. Right, thank you. So before we wrap up today, are there any other features of the trust you'd like to highlight?
00:08:44
Speaker
Yes, I think it's important to emphasize that MNP is a straightforward listed equity fund with no derivatives. Income is not a major feature of this trust. Regular annual dividends of 4.20p per share are paid using the trust's extensive distributable reserves when required.
00:09:00
Speaker
And since 2013, the Trust's board has employed a zero discount policy, aiming to ensure that in normal market conditions, M&P's shares trade close to an AV. And this is a relevant consideration in an environment where investment company discounts are wider than their historical averages. The zero discount policy has been effective, ensuring that over the last decade, M&P's shares have traded at a very modest 0.6% discount to an AV.
00:09:24
Speaker
Okay, Milosh, that was a very interesting rundown on this high quality global equity portfolio. So thanks very much for that. You've been listening to Uncovering Trusts, a podcast by the Edison Group. If you want to find out more about MNP and other investment companies that we cover, please visit www.edisongroup.com.