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Mid Wynd International prospers outside of the mainstream

The trust has been selling down its holding in online giant Amazon to invest in Japanese manufacturers of factory automation equipment
picture of factory robot
Fancy a drink after work?

Run your winners is an old investment cliché.

That’s not how the managers of the Mid Wynd International Investment Trust plc (LON:MWY) see it, however.

READ: Mid Wynd International Investment Trust seeking out unknown 'pockets of value and interest'

The team at Artemis that manages the trust judge an investment using a criteria based largely on cashflow and valuation.

It is also why recently the trust has been selling down its holding in online giant Amazon to invest in what, from the UK, might seem to be obscure Japanese manufacturers of factory automation equipment.

Simon Edelsten, the trust’s lead manager, points out that one of these companies, Daifuku, is worth US$8bn, but admits that even some Japanese fund managers may not have heard of it. 

This is part of the joy of what he does, he says, namely finding a good growth theme and looking for companies that fit it.

“That takes you into parts of the market that are not mainstream.”

It also means that the portfolio will be ‘completely different’ from the benchmark index most of the time.

Switching on to automation 

Neatly, that brings us back to the automation theme.

Edelsten has been keeping an eye on automation/robot progress for a number of years, but two things have changed recently to persuade him to invest.

First, the cost of robots is falling rapidly, to the point in places, notably China, where it is cheaper to buy a robot than employ a specialist welder.

This shift to building machine-only factories rather than using workers in emerging markets is significant.

Robots are also becoming much more versatile and can handle not just heavy lifting type jobs but light touch and sensitive work, too.

An automated solution means a better quality of product than a semi-automated plant believes Edelsten, even though we might not want to admit it.

Japanese companies almost exclusively make the parts that give factory robots the ability for light touch work but they sell on cashflow multiples that are a fraction of US companies such as Amazon.

There is a currency element and the Japanese dominance of the market means he has to keep an eye of how big a portion the automators are within the fund, but those issues aside this is a theme that can run for many years.

Themes driven

Mid Wynd is named after a street in Dundee and is a trust based on themes. 

Typically there are 8-10 ideas – automation, online services, healthcare costs, emerging market consumer, bank regulation and others are among the current crop.

Edelsten looks for the best value based on its methodology within these.

Amazon’s capital intensity

Amazon was part of its online services theme and has been a superb performer for the trust since it was acquired when Artemis took over the management from Baillie Gifford in 2014.

Up by around 150% suggests Edelsten, though that’s not the point he adds.

For an online business, it is becoming capital intensive especially following the recent acquisition of Whole Foods.

He points to online travel operator as a comparison.

It sells on a cashflow multiple two-thirds that of Amazon yet has nowhere near the capital needs.

Premier League of investment trusts

Mid Wynd is part of the Global Trust sector, arguably the Premier League of the investment trust world and inhabited by giants such as Scottish Mortgage, Alliance Trust and Foreign & Colonial.

At 472p, Mid Wynd is currently worth £154mln, modest compared to the multi-billion pound values attached to those rivals, but its performance has more than matched its peers.

Since 2014, net asset value (NAV) each year to September has risen by 17%, 27% and 16% while the share price has risen by 70p or 17% in the past twelve months.

Indeed, demand is such that Mid Wynd has issued more shares to stop the premium to asset value (1.28%) becoming too large.

A placing in May raised just shy of £6mln and is part of a process to reduce any bumps in the event the market does have a wobble. A large premium might be affected even if net asset value isn’t, he says.

Plenty of stocks to choose

Mid Wynd has no debt and Edelsten sees no need for any nor, indeed, for it to be as aggressive as some of its peers, where some have been buying non-listed companies to boost performance.

That’s not for Mid Wynd says Edelsten.

“We want to be on the right side of the curve in the event of market turbulence.” 

 “We are only a little fund and there are plenty of stocks.” 

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