A fortunate early sell-out of technology last year meant that the Mid Wynd International Investment Trust had far fewer losses in January’s stock slump.
While most other global funds had large holdings in big tech names, sinking the IT Global sector to a 4.6% loss over the past year, the trust made positive returns of 4.6%.
Portfolio manager, Simon Edelsten said that he began selling technology stocks in spring last year when he noticed a lot earlier than others that valuations were getting too high.
In the past year, he has removed about 12 percentage points from his technology allocation, buffering the trust against their downfall.
Total return of trust vs benchmark over the past year
Source: FE Analytics
Below, Edelsten tells Trustnet where he has moved the money to, why he loves unloved sectors and how birdwatching has made him take sustainability more seriously.
What about your investment strategy stands out?
We took over Mid Wynd Investment Trust when we won it off Baillie Gifford in 2014 so we’re into our eighth year now and quite well established.
Our capital protective bias is what really stands out when you compare our approach to other people in global equities.
When I look around the sector it seems to have developed in a way that I don’t think investors asked for. Funds and fund houses have become very famous for one thing or one style of management.
Investors shouldn’t be required, in my view, to sell a growth fund when growth stocks are expensive and move into a value fund or sell an aggressive fund and move into a defensive fund by timing the cycle – I think that’s part of the job for the fund manager.
Our fund has had what most people would call a quality-growth bias but it’s always been more broadly spread than the other people in the quality-growth camp.
You can see that we’re more broadly spread because when the markets have had their wobble, our trust didn’t fall anywhere near as fast as some of the previous winners.
What have been some of your best and worst calls in the past year?
The best performing share we had last year was Pfizer, which is the biggest stock in the fund. When we bought in, it was at a very modest rating. It was trading at 7x price-to-earnings for the previous year at a yield of 3% so it was extraordinarily good value for money to my mind.
On the downside, we had one company in American testing called Quidel. When the vaccines came through, the American market decided that nobody was going to do any testing anymore.
We lost quite a lot of money from that and a surprisingly large amount of money for a fairly small company, but it wasn’t being particularly well run so we cut our losses in that. It actually continued going down but it’s proved to be a very bad stock pick.
It cost us more than 0.5% of performance last year and that’s quite a lot in one quite small holding.
What changes have you made recently?
Some stocks that we’ve added to the portfolio in recent weeks are phone companies. We added NTT and KPN. They’re what we call cockroaches – they’re companies that could cope with nuclear war and carry on paying. They don’t grow very much but they generate a lot of free cash flow and they’re incredibly stable.
Over the past decade or two the shares themselves have been very lowly rated because the regulators have been very tough on them but there come times, and this is one of those times, when regulators let them make a bit more money otherwise they’re not going to run broadband.
We love unloved sectors – there was a time when phone companies were really loved. Back in 2000 they were very highly rated, now they’re one of the lowest rated.
With valuations so low, is now a good time to buy into the big growth stocks?
There’s a little bit of wait and see with this but you know who the winners are going to be so you know you want these stocks for the long run there’s just a lot of uncertainty about their earnings over the next few years.
It’s only a question of valuation – we know that these are still great companies but we know there’s been too much money squeezed into one area. It’s a combination of that and expectations being too high.
Why do you have such a large holding in Japan?
When you look for automation stocks around the world they seem to be in clusters and Japan is the leader by a country mile. Two-thirds of the world’s robots are made in Japan.
The automation theme is a really reliable long-term growth driver. It’s much more reliable than the areas the market is getting excited about, such as consumer spending, which has done well because we’ve come out of lockdown.
The more problems the market has, the more we’re keen on automation as a theme. It’s now about 16% of the investment trust and is the biggest theme we’ve got.
Which stocks are you most excited about?
Cognex has the most exciting story. It is a small company that makes intelligence sensors for robots to do picking and packing.
We also own companies who run warehouses like Prologis so when we ring them up we ask them sometimes what kit they use in their new warehouses and they keep saying Cognex kit.
There’s another company called Trimble that we own – another American company that uses GPS to optimise farming.
There are cutting edge developments in automation and as soon as you get quite a small improvement in a sensor you suddenly have a whole new range of industrial applications that can be automated that have never been automated before and that’s the exciting bit about it.
Could the success of your mining assets be impacted by the growing popularity of environmental, social and governance (ESG) themes?
Freeport-McMoRan had the sixth highest returns last year in the portfolio. We’ve looked at other copper mines to Freeport and either their ESG standards aren’t good enough for us or they’re too small. We want to see companies that are committed to trying to raise standards and have the finances to do it.
Freeport is spending a huge amount on ESG and there’s only a certain amount they can do. They’re doing everything that we could hope.
Our biggest position, however, is in a stock called Boliden which is a Finish copper mine that has much better ESG credentials. I think it has performed better because the ESG funds are prepared to buy it and they’re not prepared to buy Freeport.
What are your interests outside of stock picking?
I love birdwatching, but I haven’t been able to do it that much in a while. When one could travel more internationally, I used to travel into distant parts of the world like Antarctica to go and look for birds. I’ve seen about a third of birds in the world, which is a lot.
It certainly gives you a strong feeling of the importance of environmental factors. It makes you take all that stuff a lot more seriously.