Star portfolio manager the key to success for Magellan
This week, Morningstar has selected Magellan Global as our Where to Invest fund of the week
Magellan Global seeks to invest in outstanding global companies at attractive prices, while exercising a deep understanding of the macroeconomic environment to manage investment risk. Magellan perceives outstanding companies to be those that are able to sustainably exploit competitive advantages in order to continually earn returns on capital that are materially in excess of their cost of capital.
Magellan focuses on risk-adjusted returns, rather than benchmark-relative returns. As a result, Magellan Global's investment process is designed to generate an unconstrained, concentrated portfolio of high-quality companies.
Magellan Global's enduring competitive edge lies in portfolio manager Hamish Douglass's perceptive views and attention to detail when constructing the portfolio.
This strategy has a focused remit. It seeks high-quality stocks with wide economic moats - companies earning above-average returns on invested capital and possessing durable competitive advantages. Information technology, consumer-related franchises, financials and health care are this concentrated portfolio's main investments.
Staff assess each company's financial and strategic position diligently. Conviction in ideas is visible in Magellan Global's low stock turnover. We believe Douglass constructs this vehicle more thoughtfully than most, fine-tuning exposures after gauging risks from many angles.
Magellan's discipline in determining what passes as an attractive stock and long-term mindset may see it miss more transient opportunities, and taking sizeable stock positions exacerbates the pain of mistakes, as with Tesco in 2014-15. However, we believe this is manageable, as Douglass grasps how each stock affects the portfolio commendably and acts on well-reasoned macroeconomic views.
He is integral to our positive view but his ownership stake and the team's deep research alleviate concerns over his singular importance. Still, Magellan needs to manage its rapid team growth carefully to maintain the integrity of its process.
Magellan has also attracted a torrent of assets, although it has been well prepared to handle the extra commitments so far. Magellan Global's tremendous results span a variety of market conditions.
Investors should temper their expectations for outperformance given the disciplined and rather conservative portfolio, but we're confident it can sustain superior risk-adjusted returns over a full cycle. The expensive fee doesn't help, however, especially given the extra performance charge.
Even so, Magellan Global has advantages in its team and process that are hard to top. These features make it an excellent international share strategy.
Key fund data
Management fee: 1.35%pa plus performance fee of 10% of outperformance over the MSCI world total return, net of dividends, $A index and the Australian government 10-year bond yield.
Morningstar analyst rating: gold.
Minimum initial investment: $10,000.
Launch date: June 29, 2007
This material has been prepared by Morningstar Australasia Pty Ltd for general use only, without reference to your objectives, financial situation or needs. You should seek your own advice and consider whether the advice is appropriate in light of your objectives, financial situation and needs.