I recently decided to make Magellan Global Trust (ASX: MGG) the biggest holding in my portfolio.
Long-term readers will know that I have been a fan of this listed investment trust (LIT) for a while. It's operated by Magellan Financial Group Ltd (ASX: MFG), one of the best-performing fund managers in Australia.
The decision to make Magellan Global Trust the biggest position in my portfolio partly came about because of the unit purchase plan. Magellan was offering unitholders the chance to buy additional units at $1.5327 per unit, which was a 5% discount to the net asset value (NAV) per unit at the time of the offer.
However, with the market recovering, Magellan Global Trust's underlying NAV was actually around $1.67 when I decided to invest in the unit offer and the unit price has since risen to $1.67 – giving me a quick 9% return in a couple of weeks, although I plan to remain a long-term shareholder.
Magellan has a long history of consistently outperforming the market by having the right balance of cash and growth shares like Alphabet & Facebook in its portfolio. It also holds a handful of defensive shares. Indeed, the investment team at Magellan run a defensive and growth portfolio in the same portfolio.
Since inception in October 2018, the Magellan Global Trust's portfolio has outperformed the MSCI World Net Total Return Index (AUD) after fees and expenses.
Magellan has been particularly good at downside protection. A good example of this was in October 2018 when the index dropped 5.4% but Magellan's portfolio only dropped by 2.9%.
Why I made Magellan Global Trust my biggest position
Aside from the good returns already achieved by Magellan, I chose to invest more in this LIT because I believe the strongest returns are likely to come from outside of Australia over the longer-term. Australia's economy is heavily focused on the strength of the housing market, which isn't looking good at the moment.
Magellan invests in mostly global businesses that have pretty defensive earnings and long growth runways such as Visa, MasterCard, Alphabet, Microsoft and Starbucks. I'm choosing to re-invest my Magellan Global Trust distributions and get the 5% discount, which is handy to boost returns. I also like that it targets a distribution yield of 4%.
Magellan Global Trust is still trading at a little bit of a discount. Its intraday indicative NAV is currently $1.72, compared to the current share price of $1.67.
