A unique approach to investing combined with a business model similar to that of industry giant Baillie Gifford has helped the recently launched $33m Majedie International Equity fund towards the top of the competitive IA Global sector.
Performance of fund versus sector & benchmark since launch
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Source: FE Analytics
Since launch, Majedie International Equity has returned 45.54 per cent versus 17.54 per cent from the average peer in the IA Global sector and 9.64 per cent from the MSCI ACWI ex USA benchmark. This puts it in the top decile of its peer group.
Manager Tom Record argued that one reason behind the fund’s initial success was the structure at Majedie Asset Management. Much like Baillie Gifford’s partnership structure, Majedie’s business is built around being owned by employees and partners at the firm.
“We're all focused on getting the long-term best results for our clients which I think is really important in fund management, and quite rare,” Record said.
“There's been too much risk-managed asset management that is managed to the risk of fund managers, rather than to think about the risks of the clients. The risk to the fund managers is to underperform the benchmark, whereas actually the risk to the clients is that over the long term you don't make the returns that you need for your pension.”
In addition to having a stake in Majedie, Record said most of his pension is invested in the firm’s global strategies.
Indeed, the firm’s flagship unconstrained $149m Majedie Global Equity fund - where Record is also a co-manager - has an impressive track record.
It has delivered a 152.56 per cent total return since it launched in 2014 versus 104.29 per cent from the average IA Global peer and 116.19 per cent from the MSCI ACWI benchmark.
Performance of fund versus sector & benchmark
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Source: FE Analytics
The smaller $33m Majedie International Equity fund was born out of the flagship fund in 2019 to allow investors to get more exposure to the unconstrained element of the strategy, which Record believes has quite a different and unknown approach to the rest of the industry.
“When I think about investing, I think about change,” he said. “Now change creates uncertainty, and uncertainty is usually something that investors run away from. I'm quite the opposite.
“I think uncertainty - if you back your ability to do really good analysis - is a great opportunity. If everything is certain, there's very little value add for your analysis to bring in.
“If there are variables that you can analyse that you believe you have an edge on, that's when you can add value through holding your investment.”
This idea of investing in change over the long run is a core tenet of the way Record invests.
“I think it’s a very different way of thinking about investing,” he said. “If you do back yourself, then you want uncertainty. If you think you're rubbish at analysis, then you don't want any uncertainty.
“We back ourselves – and that's why I have my pension invested in the funds.”
Much of the change that occurs across industries is inevitable, in Record’s opinion. When Majedie International Equity bought into South Korean battery manufacturer Samsung SDI several years ago, the team believed it was the best way to get exposure to this inevitable change.
Record said: “We've been saying that the EVs are a much better solution than combustion engine cars and we've been thinking this for years.”
“For us, it was a question of identifying the potential for a huge market to come out, and where a business like Samsung has a track record of being willing to invest and to keep on investing until it becomes the dominant or an industry leader in technology.
“We've seen that in the DRAM memory chip industry where they continue to invest, invest, invest. When everyone else was cutting back their investments in R&D during downturns, Samsung carried on and they now have over 50 per cent market share and are a generation technology ahead of everyone else in DRAM and have superior margins.”
Record at the time believed that Samsung’s approach to business could be applied at the battery side as well and become very valuable.
Since then, Samsung SDI is now one of the world’s leading energy battery technology manufactures in the world, boasting the likes of Volkswagen, BMW and Fiat as some of its customers.
Share price performance of Samsung SDI over 5 yrs
Source: Google Finance
One other thing Majedie International Equity does differently to most its global peers is take a large relative underweight position to the US equity market.
When investors are considering a global fund to diversify their equity exposure, Record said most who consider an MSCI World index tracker fund aren’t getting a truly global exposure.
“The MSCI world is almost two-thirds US and over 20 per cent of that US exposure is in six companies,” he said. “You're not diversifying your exposure, you are basically buying a US fund in disguise, with a little bit tacked on the edge.”
“We felt that if you want a truly diverse exposure, then limiting the US exposure was a really good way of doing that.”
The fund has a specific mandate where it is not allowed more than 10 per cent of assets invested into US equities.
“We have quite a lot in terms of geographical diversity and we have quite a lot in emerging markets as well,” Record added.
Before he joined Majedie’s global equity team, Record previously managed various emerging markets funds at Baillie Gifford.
Whilst many global managers take a long-term approach to global equities, Record said it is less common in emerging markets (EM): “Some of these businesses aren't necessarily EM-exposed things like TSMC and Samsung in terms of end-demand, but the analysis that's often done on them is by people who are very short-term minded.
“Which is a great opportunity for someone like myself to use that to bring an extra way of making money to the fund.”
He also said the managers are more careful and cautious about identifying which risks he is exposing the fund to than a typical manager.
“When we think about risk, we always think about opportunity and we want to take risks that are thought out understood and where the opportunity more than offsets those risks,” he said.
“With that, we think you have the potential to outperform over pretty much most market conditions, and that's what we've been able to do over the last six and a half years.”
He believes the fund provides exceptional value for investors especially given its 40 per cent exposure to emerging markets and noted the fees of some passive emerging market exchange-traded funds (ETFs) that charge up to 0.5 per cent.
The ongoing charges figure (OCF) for the Majedie International Equity strategy is currently 0.25 per cent.