A guide to the Mid Wynd International Trust

Please note — This interview took place on 29 April 2025

Mid Wynd International (MWY) can trace its roots back to 1797, when a weaver by the name of David Scott bought a property on Mid Wynd in Dundee to form a textile business. More than 200 years later and the business is now focused on global trade and investment (the investment trust was actually formed in 1981).

MWY scours the globe with the aim of uncovering promising businesses with substantial growth potential. The result is a high-conviction portfolio of 40-50 stocks which the managers look to invest in over the long term to take advantage of those compounding effects.

Having taken over the mandate from Artemis back in October 2023, the team at Lazard has applied its highly successful Global Quality Growth strategy to this trust, giving access to retail investors for the first time. Performance of the Global Quality strategy has been strong since its launch back in 2011 (see performance section). MWY is managed by Louis Florentin-Lee and Barnaby Wilson, with Martin Flood, Jessica Kittay and Stephen Tong all directors on the portfolio.

Investment Process

Finding compounders that can prove markets wrong

This strategy is all about identifying companies across the globe which are not just financially stable (they can  generate high returns on capital) but which also have the ability to reinvest a significant amount of those returns back into the business to drive future growth. The managers believe the market tends to underestimate companies which demonstrate these characteristics, with the assumption being that these returns will eventually start to fade. By contrast, they believe these companies can continue to invest and innovate to “beat the fade” and compound returns for shareholders.

The investment process is split into three stages. The first is idea sourcing, where screens are used to evaluate companies based on financial productivity, while also filtering out the top 30% of companies in their “compounder universe”. This, in combination with a focus on companies with a market cap in excess of around $1bn, normally bring their investable universe down to 300-500 companies.

The second stage is fundamental analysis – here the team ask a series of questions about each stock. These include how does a company generate high returns; the sustainability of those returns; will management invest cash to grow; and how long must the returns be sustained to justify the valuation? The aim is to find those long-term competitive advantages – these can come in many guises such as brand, regulatory barriers, scalability, strength of the network or being involved in a niche business.

The final stage is portfolio construction, which covers alpha isolation and diversification of risk. The latter is because the managers are keen for the portfolio to benefit from different drivers of returns. The final portfolio is high conviction at 40-50 names and turnover is relatively low at 10-15%, a reflection of the focus on quality and giving companies time to compound and generate long-term returns to investors.

Why now for this portfolio

• Mirror strategy for institutional investors has produced strong performance since launch, with a net annualised return of 11.3% (vs. 10.3% for MSCI ACWI Index).
• Well diversified portfolio of global stocks making it a strong alternative for those who are worried about having too much exposure to technology (portfolio will have numerous drivers of return).
• Quality focus should mean the companies it invests in will have a degree of protection from tariffs and wider market volatility.
• Discount control mechanism in place at +/-2% to maintain share price within a band
• Quality focus is reflected by higher forward earnings growth estimates when compared to MSCI ACWI*.

Manager’s View

“History shows that holding quality companies with competitive advantages can outperform the benchmark over the longer term. These companies are often overlooked – but can offer sustainable returns and diversification at a time when concentration risk is a real concern.”

Portfolio manager Stephen Tong says the team have made no changes in the wake of the Trump tariff’s saga, citing the fact that despite it putting significant stress on markets, the playing field is changing every day with pauses and escalations impossible to pre-empt.

A good example is Nike, a company they own in the portfolio which has been marked down by the 46% tariffs placed on Vietnam, where a fair amount of their shoes are made and then exported to the US. “You can’t make a decision to double down on a company like Nike, there was simply too much uncertainty and then suddenly tariffs were paused,” he adds.

Tong says there is still uncertainty over areas like semiconductors, pharmaceuticals and the services sector, adding that countries will (and have) reacted differently. There will be an impact on wider economic growth coming out of this.

The team have already analysed MWY’s underlying companies in terms of the level of exposure to tariffs. While there are plenty – like services and domestic stories – facing little or no impact at this stage, the belief is that many of the others will have strong margins and/or the ability to pass on price increases to protect them in this scenario.

MWY is a well-diversified portfolio with technology (31.3%), financials (20.7%) and industrials (19.9%) the three largest sector positions. As mentioned, the portfolio is all about “beating the fade” by finding those companies that can continue to reinvest in their business and produce strong returns for a longer period than the market expects**.

Tong points to Taiwan Semiconductor Manufacturing Company (TSMC) as an example of this long-term story. He says: “TSMC is a classic compounder, it is a high-quality company with barriers to competition, which allows them to generate high returns on capital (financial productivity). That return on capital generates cash, and that cash gets reinvested back into the business to grow the asset base. 

“Companies with a strong competitive advantage can maintain those returns on capital from period-to -period. With a higher asset base, they can create a higher cash flow in the next period, which can get reinvested, and this compounding of cashflows allows this reinvesting to continue and we think the share price should follow the cashflows over the longer term.”

This means placing long-term faith in a company, something the team have done on the mirror strategy run for institutional investors. Turnover on the portfolio is estimated to be 10-15% and long-term holdings include the likes of Accenture, Alphabet, Tencent, Coca Cola, HDFC Bank, Intercontinental Exchange and Visa. Crucially, they believe this ability to compound these returns over the long term is undervalued by the market.

“Many of these companies are leaders in their space or have a standout niche. Effectively they have created moats which protect their valuation.  We did an analysis of our holdings not that long ago which indicated that our holdings showed a median cash flow return on investment of 28% (compared to 9% for the MSCI ACWI),” Tong says.

Portfolio activity

Purchases and sales in the first quarter of 2025 included the addition of both Alphabet and Meta. The team felt that with markets still being narrow (see performance section for more on this) they wanted a stronger position in Alphabet, with Tong pointing to both strong AI investment and advertising revenue. It marked a slight change in view, with the team having originally sold down the position at the end of 2024 amid growing questions around capital expenditure and what any sort of restructure of the business would look like with the US Department of Justice.

Other additions included EssilorLuxottica, a global firm which focuses on eyecare and eyewear. Tong says they have end-to-end value chain control for making eyeglasses, with various brands and distribution channels. He also points out that they only sell the raw lenses into the US (which are fairly cheap and mean they have limited impact from tariffs) – while the value-add finishing of the lenses is done on US soil.

Other additions included HealthEquity, which is an administrator for health savings accounts for large providers. In the US, there are health savings accounts which US citizens can put money into for tax benefits (there is a payroll deduction – so the money is put in before you are taxed), and these help to pay medical expenses.

The other addition was Hilton Worldwide, where the managers believed valuations had reached an attractive level given the company has a number of strong, long-term franchises.

The rationale for sales typically falls into one of three buckets.

• Alpha Source – Eroded confidence in the sustainability of a company’s high financial productivity. Examples here include Estee Lauder, which the team says has both brand and macro issues (slow China recovery impacts compounder potential); and BRP, which has impending competition, meaning that returns are likely to fall.
• Valuation – Valuation fully reflective of the company’s sustainable level of financial productivity. A recent change for this metric is software company Intuit.
• Competition – A new investment candidate appears with higher conviction in economic moats. Examples here included Texas Instruments (replaced by VAT Group) and Danaher (replaced by EssilorLuxottica).

Performance

Narrow markets, AI hopes and value headwinds

Performance of the Lazard Quality Growth Strategy (the institutional product MWY now mirrors) has been strong since launching back in 2011, with a net annualised return of 11.3% (vs. 10.3% for MSCI ACWI Index).*

The current management took over this product on 2/10/23 and have faced some headwinds to date, notably the narrowness of market leadership and, more recently, the preference for value over quality in 2025. Since the managers took over, MWY has returned 9.3%, compared with an average return of 27.1% for a trust in the Association of Investment Companies Global sector***.

Narrowness in markets is due to the strength of returns from large US tech stocks, fuelled by the boom in Artificial Intelligence. MWY has some positions in the Magnificent Seven (notably Microsoft, Alphabet, Apple and most recently Meta), but does not have positions in others which has hurt performance (NVIDIA). It is important to remember that the managers are keen to have numerous drivers for performance.

Tong says the Magnificent Seven now represent over 20% of the MSCI All Countries World Index and over 27% of the S&P 500. Only 26% and 27% of the S&P 500 constituents outperformed the index in 2023 and 2024, respectively – a smaller figure than what was previously seen during the dot.com bubble.

The view is that many of these “compounder” companies, which are often overlooked, are being passed over more than ever due to these narrow markets – and that a broadening out for any reason could be a big boon for performance.

Tong points to the median increase in 12-month forward earnings per share estimates being at 7.4% in MWY in 2024. This compares to 7.2% for the cap-weighted MSCI ACWI and a median of 3.4% across the index constituents. 

He says: “But when we look at the P/E multiples at the beginning of the year versus the end of the year – our P/E multiple went down whereas the market went up. This makes little sense as it means we were de-rated even though our earnings were fine.”

“AI winners will be solution providers and not the infrastructure companies.”

As mentioned, MWY does have exposure to AI through both the Magnificent Seven, as well as a number of other solution providers. This is an important focus – as the team prefer these types of companies over infrastructure businesses, like Broadcom and NVIDIA. TSMC was an example of this, as is Salesforce, a company Tong says can use AI chatbots to help improve efficiency for both the business and its clients.

As for NVIDIA, Tong cites the returns on capital being closer to 20% when they were a graphics supplier to videogames. 

He says: “Because of the virtual monopoly they’ve had on these advanced chips, the cashflow return on capital is now in the 60% range. The way the market is evolving means we think that is not sustainable. It is hard to buy shares at that price. NVIDIA may be in a good position today, but history shows hardware dominance will shift.”

Lagging performance during low quality rallies

MWY will traditionally lag during periods where value thrives, as has been the case in the first quarter of 2025. The MSCI Value Index is up 6%, while the MSCI Quality and Growth indexes were down 2% and 6% respectively*.

What else do investors need to know?

MWY has not used gearing since the team at Lazard took over the trust in October 2023 – it should however be noted that the strategy can borrow up to 30% of its net assets. 

The portfolio is currently trading at a discount of 2.5%****, the second lowest in the IT Global sector. It has typically traded at a small premium for the past couple of years. The board tries to maintain the NAV at a 2% band and bought back 12.5m shares at a total cost of £91.7m (at an average discount of 2.2%) in the past financial year (figures to 30 June 2024).

The trust does deliver some dividend growth, but the focus on compounders, who re-invest, supports the primary aim of total returns. Dividends per ordinary share stood at 8p in the past financial year^ (dividend yield stood at 1.06%)****.

Ongoing charges stood at 0.6%, slightly above the average for the IT Global sector.

Our opinion

This is a strong consideration for investors looking for a global portfolio with a focus on risk. The strategy is backed by a number of experienced managers and an extensive research team, covering numerous sectors.

Recent headwinds mean now could be an excellent opportunity to access a number of overlooked global compounders who have created market-leading positions in their respective industries. Should we see further broadening of market returns, the management team expects their holdings to prosper. 

With numerous drivers of return, a long-term focus and a history of consistent returns, this could be a good opportunity to access a core portfolio of leading global businesses.

*Source: Mid Wynd International Investment Trust presentation, 31 March 2025

**Source: fund factsheet, 31 March 2025

***Source: FE Analytics, total returns in pounds sterling, 2 October 2023 to 15 May 2025

****Source: Association of Investment Companies, 16 May 2025

^Source: Lazard Annual Report, 30 June 2024