My ASX share of the week this time is listed investment trust (LIT) Magellan Global Trust (ASX: MGG) at today's share price.
A quick overview of Magellan Global Trust
Magellan Global Trust is a LIT that was listed in October 2017. It is operated by the fund manager Magellan Financial Group Ltd (ASX: MFG).
The job of a LIT is to invest in other shares on behalf of shareholders. This particular LIT invests in global shares.
The two portfolio managers of the LIT are Stefan Marcionetti and Magellan co-founder Hamish Douglass.
The investment style of Magellan is to invest in the highest-quality shares at prices where it can make good long-term returns.
At the end of June 2020 its top 10 holdings and allocations were: 9.4% to Microsoft, 6.6% to Facebook, 6% to Alibaba, 5.9% to Alphabet, 4.9% to Tencent, 4.4% to Reckitt Benckiser, 3.8% to Atmos Energy, 3.3% to Visa, 3.1% to Eversource Energy and 3% to MasterCard.
Why I like the trust's investment style and holdings
Only a certain number of businesses deliver outperformance of the market over the short-term and long-term. If you stay invested in the quality businesses for the long-term then they can deliver strong compound growth. Just look at how well Microsoft, Alphabet, Visa and Mastercard have done for investors.
The less investment decisions you have to make the better, if you're invested in the right shares. I like that Magellan Global Trust tries to be a long-term investor. But it's willing to sell as well, when it seems right to do so.
Whether it's good times or bad, quality businesses are usually able to perform strongly. Just look at how shares like Alphabet and Microsoft have bounced back since the March 2020 crash.
Many of its top holdings are well positioned with whatever happens next with COVID-19. Businesses like Microsoft, Alphabet, Facebook, Alibaba and Tencent are internet, IT and ecommerce businesses which can keep thriving through COVID-19. Energy and utility companies are solid defensive options – they should continue to be robust businesses because of their essential service.
The Magellan Global Fund, a sibling fund, is one of the oldest Magellan funds. At 30 June 2020 it had generated returns of 15.8% per annum over the past decade, which shows the types of returns that Magellan Global Trust could make over the long-term.
Why I think it's a buy today
I think Magellan Global Trust is a buy at this share price for a few key reasons.
The first is its quality portfolio that I outlined above. I think quality global businesses will be able to perform better than the ASX over the next 12 months and the long-term. The Magellan portfolio is stuffed full of quality businesses. I like the mix of growth and defence.
Another reason I think it's a buy is that it's trading at decent value. The current intraday indicative net asset value (NAV) per unit is $1.824, which means the Magellan Global Trust share price is at a 2.5% discount to the NAV. I like being able to buy assets cheaper than what they're worth, with a manager that consistently outperforms its benchmark after fees.
The third reason why I think it's a buy today is that the Australian dollar is the highest it has been against the US dollar. That means it's cheaper to buy US shares in Australian dollar terms. Many of the shares in Magellan Global Trust's portfolio are listed in the US.
The final reason why I think it's a good buy today is its cash position. At 30 June 2020, 18% of the portfolio was allocated to cash. This gives the trust good downside protection if the share market were to fall again due to COVID-19 impacts, or perhaps due to the upcoming US election.
I do think the US election will cause more volatility over the next few months. So if you don't think it's good enough value to buy today, I think that the US election could create an even better buying opportunity.
