Martin Currie Global Portfolio Trust — Continuing to do ‘what it says on the tin’

Martin Currie Global Portfolio Trust (LSE: MNP)

Last close As at 19/07/2024

GBP3.66

−1.00 (−0.27%)

Market capitalisation

GBP245m

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Research: Investment Companies

Martin Currie Global Portfolio Trust — Continuing to do ‘what it says on the tin’

Martin Currie Global Portfolio Trust (MNP) has been managed by Zehrid Osmani since 1 October 2018. Despite a tough period of absolute and relative underperformance in 2022 as growth stocks have been out of favour with investors, the manager continues to adhere to his long-term strategy of focusing on high-quality companies with sustainable growth potential. He believes that valuation discipline is a very important element of the investment process, even more so in periods of rising interest rates. Osmani only invests when he has high conviction in a company’s positive long-term prospects; this is evidenced by no new holdings (or complete disposals) in the five months from May to September 2022, although portfolio activity has subsequently picked up.

Melanie Jenner

Written by

Mel Jenner

Director, Investment Trusts

Investment Companies

Martin Currie Global Portfolio Trust

Continuing to do ‘what it says on the tin’

Investment trusts
Global equities

2 February 2023

Price

324p

Market cap

£246m

Total assets

£277m

NAV*

328.2p

Discount to NAV

1.3%

*Including income. At 31 January 2023.

Yield

1.3%

Ordinary shares in issue

76.0m

Code/ISIN

MNP/GB0005372411

Primary exchange

LSE

AIC sector

Global

Financial year end

31 January

52-week high/low

367.0p

275.0p

NAV* high/low

370.5p

281.7p

*Including income

Net gearing*

11.7%

*At 31 December 2022.

Fund objective

Martin Currie Global Portfolio Trust’s objective is to achieve a total return in excess of the total return of the benchmark MSCI AC World Index. Prior to 1 February 2020 the objective was to generate a capital return in excess of the capital return of a less broad global index.

Bull points

Portfolio of high-quality, attractively valued global equities.

Manager is committed to MNP’s detailed, repeatable investment approach.

ESG analysis is an integral part of the research process.

Bear points

MNP’s performance has struggled in a market where growth stocks have been out of favour.

Relatively concentrated portfolio means that the performance of a single holding can affect the whole fund’s performance.

Annual dividend has held steady for the last six financial years.

Analyst

Mel Jenner

+44 (0)20 3077 5700

Martin Currie Global Portfolio Trust is a research client of Edison Investment Research Limited

Martin Currie Global Portfolio Trust (MNP) has been managed by Zehrid Osmani since 1 October 2018. Despite a tough period of absolute and relative underperformance in 2022 as growth stocks have been out of favour with investors, the manager continues to adhere to his long-term strategy of focusing on high-quality companies with sustainable growth potential. He believes that valuation discipline is a very important element of the investment process, even more so in periods of rising interest rates. Osmani only invests when he has high conviction in a company’s positive long-term prospects; this is evidenced by no new holdings (or complete disposals) in the five months from May to September 2022, although portfolio activity has subsequently picked up.

NAV performance versus the benchmark over the last five years

Source: Refinitiv, Edison Investment Research. Note: Osmani’s tenure as lead portfolio manager started on 1 October 2018.

The analyst’s view

MNP’s performance has suffered during a period where investors have followed macroeconomic developments rather than focusing on company fundamentals. Despite a 26.5% NAV decline in 2022, the trust has delivered acceptable long-term results with absolute annual NAV and share price total returns of 10.0% and 10.1% respectively over the last decade. This year has the potential for further stock market volatility given macroeconomic risks including monetary and fiscal policy, corporate margin pressure, pandemic relapses and heightened geopolitical tensions. In a lower growth environment, investors could be well served by focusing on a differentiated fund with a steadfast focus on high-quality companies that have solid long-term growth prospects and are trading on sensible valuations.

Actively managed zero-discount policy

Since 2013, MNP’s board has employed a zero-discount policy, aiming to ensure that, in normal market conditions, the trust’s shares trade close to NAV. The trust’s 1.3% share price discount to cum-income NAV compares with a range of a 2.2% premium to a 4.7% discount over the last 12 months and a range of 0.3% to 1.4% average discounts over the last one, three, five and 10 years. MNP’s shareholders have approved the use of realised capital gains for dividend payments ensuring that the board can continue with the trust’s policy of steady/rising payments, while lowering the pressure to achieve a defined level of income.

Market outlook: Further caution required for 2023

Exhibit 1 (left-hand side) shows the performance of indices over the last five years; investors had to endure an above-average level of stock market volatility in 2022. Supply-chain issues during the global pandemic followed by the war in Ukraine have led to a sustained period of inflation, which is a backdrop that many market participants and corporate executives have not experienced before. Central banks have responded by rapidly raising interest rates; in 2022, the US Federal Reserve raised the base rate from 0.25% in March to 4.50% in December. Growth stocks have been out of favour as higher interest rates reduce the present value of their long-term cash flows and market leadership has shifted towards value names. While inflation rates in developed markets may have peaked as upcoming data points are coming up against high year-on-year comparisons, continued elevated prices may to lead to further interest rate increases. Central banks have a delicate balancing act between keeping a lid on prices and ensuring that higher interest rates do not cause a recession. Hence, further volatility looks likely in 2023 and investors could benefit from a diligent focus on the prospects of individual businesses as, over the long term, stock prices are driven by company fundamentals rather than macroeconomic considerations.

As shown in Exhibit 1 (right-hand side), forward P/E valuation multiples have moderated, as the Datastream World index is now trading at a discount to its 10-year average. However, as the Q422 earnings season and 2023 progresses, there is a risk of more negative earnings estimate revisions given the uncertain economic environment where consumers are facing higher costs of living and corporate margins are likely to be under pressure due to rising input costs, which are exacerbated by tight labour markets. It may be that stocks are more expensive than current numbers suggest.

Exhibit 1: Market performance and valuation

Global and UK indices (£ total return) last five years

Valuation metrics of Datastream indices (at 1 February 2022)

 

Last

High

Low

10-year
average

Last as % of
average

US

P/E 12 months forward (x)

18.3

23.4

13.2

17.7

103

Price to book (x)

4.0

4.6

2.0

3.1

128

Dividend yield (%)

1.6

2.7

1.2

1.9

85

Return on equity (%)

16.6

18.5

9.8

13.9

120

World

P/E 12 months forward (x)

14.9

19.9

12.4

15.4

97

Price to book (x)

2.3

2.5

1.5

1.9

118

Dividend yield (%)

2.4

3.4

1.8

2.4

98

Return on equity (%)

13.4

14.0

7.3

11.0

122

Source: Refinitiv, Edison Investment Research

The fund manager: Zehrid Osmani

The manager’s view: Keeping conviction in portfolio companies

In September 2022, Osmani increased his estimate for the chance of stagflation (high inflation and stagnant demand) in 2023 from 10–15% to 30%, with the probability of a sharp economic slowdown at 70% for the global economy. He says that the highest risk of stagflation is in Europe (which is more cyclical than other developed markets) due to disruptions from the war in Ukraine, higher energy prices and the rush to secure energy supplies. The manager’s views differ from the consensus, which is forecasting a very high chance of a US recession as a result of the inverted yield curve. He suggests that the swing factor is China, which is the second largest economy in the world. With the move away from a zero-COVID-19 policy, China could dictate the pace of global growth in 2023 and help avert a global recession. However, the situation is not straightforward. The Chinese economy is opening rapidly, but the high level of COVID-19 infections is restricting activity and could temper consumer and business confidence. As a result, China is unlikely to support global growth in the early part of 2023 opines Osmani. (MNP’s exposure to China includes its luxury goods and some of its industrial holdings.)

The manager comments that in 2023, monetary policy expectations will dictate the direction of the stock markets and style leadership. He says that forecast error has been elevated when predicting inflation, including by central banks, economists and market participants. Osmani believes that inflation is still ‘frictional’ (temporary) rather than structural, but could continue for longer than expected. However, momentum will slow due to base effects (monthly data points will face high year-on-year comparisons), which means we could be coming closer to peak monetary policy. Purchasing manager indices have declined for both manufacturing and services.

Central banks are playing a game of chicken suggests the manager, raising interest rates to combat higher inflation but thereby risking economic weakness. His view is that if peak interest rates occur in 2023 rather than 2024, it should be supportive for MNP’s style of investing in quality growth names. Osmani comments that it is important to focus on wage inflation, as if this is persistent there is a risk of structural inflation. Wage inflation has risen by a much greater degree in the United States compared with other developed markets and the consensus view is that the Federal Reserve may not have to hike as aggressively as it has been doing if employment data softens.

The manager highlights that earnings estimate momentum declined during 2022, and there has been an element of stabilisation. However, this stabilisation is due to energy companies’ strong profits. If this sector is excluded, estimate revisions are negative. Osmani expects more profit warnings in the Q422 earnings season, especially from cyclical companies including industrials and technology, which are sensitive to higher interest rates. He believes that consensus global earnings growth estimates of +3–5% for 2023 are too high. The manager considers 0% more realistic for global growth, including -1% in the United States and -5% in Europe. He notes disappointing results from large tech companies in Q322, including from the FAANGs: Meta Platforms (Facebook), Amazon, Apple, Netflix and Alphabet (Google). As a reminder to readers, MNP has no FAANG exposure; Osmani has more confidence in the earnings of luxury goods companies and believes that in line or positive numbers will be received positively in the stock market.

The manager stresses the importance of remaining selective. There has been a rapid increase in interest rates and there is a lag before they feed into economic activity and corporate earnings. He says that high-end product demand remains robust, but the increased costs of living could mean that mass-market and lower-end products are struggling. Osmani comments that inflation increases the risk of margin pressure in 2023, which can be mitigated for MNP given his focus on companies with pricing power. The manager believes that valuation discipline is critical, that companies need to have strong balance sheets if we are heading into recession and firms also require structural growth opportunities if growth is scarce.

Current portfolio positioning

At the end of December 2022, MNP’s top 10 holdings made up 52.0% of the fund, which was a modest increase in concentration compared with 50.5% a year earlier; five positions were common to both periods.

Exhibit 2: Top 10 holdings (at 31 December 2022)

Company

Country

Sector

Portfolio weight %

31 Dec 2022

31 Dec 2021*

Linde

US

Materials

6.6

4.8

Microsoft

US

Information technology

6.1

5.9

ResMed

US

Healthcare

5.8

4.9

ASML Holding

Netherlands

Information technology

5.2

N/A

Visa

US

Information technology

5.1

N/A

Moncler

Italy

Consumer discretionary

5.0

4.6

Atlas Copco

Sweden

Industrials

4.6

4.6

CSL

Australia

Healthcare

4.6

N/A

AIA Group

Hong Kong

Financials

4.5

N/A

L'Oréal

France

Consumer staples

4.5

N/A

Top 10 (% of portfolio)

52.0

50.5

Source: MNP, Edison Investment Research. Note: *N/A where not in end-December 2021 top 10.

As a reminder, MNP’s regional and sector weightings are a result of bottom-up stock selection. The trust’s geographic breakdown is shown in Exhibit 3. In the 12 months to end-December 2022, the notable changes are a 6.5pp lower emerging markets exposure with higher weightings in North America (+3.5pp) and Pacific ex-Japan (+2.4pp). The largest active weights remain Europe including the UK (+25.0pp) and North America (-16.3pp).

Exhibit 3: Portfolio geographic exposure versus MSCI AC World Index (% unless stated)

Portfolio end-
Dec 2022

Portfolio end-
Dec 2021

Change
(pp)

Index
weight

Active weight
vs index (pp)

Trust weight/
index weight (x)

North America

47.1

43.7

3.5

63.4

(16.3)

0.7

Europe (inc UK)

41.3

40.6

0.7

16.4

25.0

2.5

Pacific ex-Japan

8.1

5.8

2.4

3.2

4.9

2.5

Emerging markets

3.4

9.9

(6.5)

11.2

(7.9)

0.3

Middle East

0.0

0.0

0.0

0.2

(0.2)

0.0

Japan

0.0

0.0

0.0

5.6

(5.6)

0.0

Total

100.0

100.0

100.0

Source: MNP, Edison Investment Research. Note: Adjusted for gearing and cash. Numbers subject to rounding.

MNP’s sector weighting changes in the 12 months to end-December 2022 have generally been modest, with the largest being materials (+3.5pp) and communication services (-2.4pp). Compared with the benchmark, the trust has notable overweight positions in healthcare (+13.6pp) and technology (+10.6pp) and a below-index weighting in financials (-11.1pp).

Exhibit 4: Portfolio sector exposure versus MSCI AC World Index (% unless stated)

Portfolio end-
Dec 2022

Portfolio end-
Dec 2021

Change
(pp)

Index
weight

Active weight
vs index (pp)

Trust weight/
index weight (x)

Information technology

30.6

32.7

(2.1)

20.0

10.6

1.5

Healthcare

27.0

24.4

2.6

13.4

13.6

2.0

Consumer discretionary

14.6

15.8

(1.2)

10.4

4.2

1.4

Industrials

9.9

12.0

(2.1)

10.2

(0.2)

1.0

Materials

8.0

4.5

3.5

5.0

3.0

1.6

Consumer staples

5.9

5.6

0.3

7.7

(1.9)

0.8

Financials

4.0

2.6

1.4

15.2

(11.1)

0.3

Communication services

0.0

2.4

(2.4)

6.8

(6.8)

0.0

Real estate

0.0

0.0

0.0

2.6

(2.6)

0.0

Utilities

0.0

0.0

0.0

3.2

(3.2)

0.0

Energy

0.0

0.0

0.0

5.6

(5.6)

0.0

Total

100.0

100.0

100.0

Source: MNP, Edison Investment Research. Note: Adjusted for gearing and cash. Numbers subject to rounding.

Osmani emphasises the need to be very stock specific with regards to portfolio activity; there were no new positions or complete disposals between May and September 2022. In October 2022, the manager initiated a position in UK speciality chemicals company Croda International, a name that had been on MNP’s watchlist. The firm is upgrading its portfolio via acquisitions and disposals to become a more focused materials company with higher growth and returns potential. According to Osmani, Croda has 8% revenue growth and stable 13% earnings growth, and he forecasts its return on invested capital (ROIC) will increase from 12.0% to 15.5% over the next five years.

During October 2022 there were two complete disposals. German sportswear manufacturer Adidas has had a series of profit warnings. The company has also cancelled its collaboration with Ye (formerly Kanye West), which previously made a higher contribution to Adidas’s profit pool than expected; the manager believes that the discontinuation could reduce its earnings by 35%. Osmani had been reducing MNP’s Chinese technology exposure in 2021 and 2022. He sold the trust’s Tencent Holdings position as there is ongoing regulatory uncertainty around China’s ‘common prosperity’ initiative.

In November 2022, Zoetis was added to MNP’s portfolio. It is an animal health specialist that was formerly part of major US pharma company Pfizer. A sell-off in Zoetis’s share price following weak Q322 results, which the manager considered to be an overreaction, provided an attractive entry point for a stock that had been on MNP’s watchlist. Osmani has modelled 9% annual sales growth and 12% earnings growth, and he forecasts its ROIC to increase from 27% to 36% over the next five years.

MNP has a new position in US sportswear manufacturer Nike, where a profit warning due to excess inventories in the United States, Europe and China provided an attractive entry point. The manager has modelled 8% sales growth and 22% earnings growth, and notes that Nike has a higher ROIC than Adidas. He anticipates a depressed 27% ROIC in 2023, due to destocking, rising to 34% in 2024 and 42% in 2028. Nike’s stock price is recovering well from its October 2022 low.

In December 2022, Osmani sold MNP’s very small holding in British-Portuguese online luxury fashion retail platform Farfetch. This position had been a detractor to the trust’s performance and the manager was waiting for the company’s capital markets day for further information. There was disappointing mid-term growth guidance and Osmani had concerns about the loss of licensing agreements, which would increase Farfetch’s balance sheet risk. Now this holding has been sold, 100% of MNP’s portfolio is made up of profitable companies.

Performance: Continuation of tough environment

Exhibit 5: Five-year discrete performance data

12 months ending

Share price
(%)

NAV
(%)

Benchmark*
(%)

MSCI AC World
(%)

CBOE UK All Companies (%)

31/01/19

(0.3)

1.6

0.9

0.6

(3.9)

31/01/20

30.4

24.6

17.1

16.4

10.5

31/01/21

20.5

20.1

12.9

12.9

(8.6)

31/01/22

(2.6)

3.0

16.4

16.4

19.3

31/01/23

(9.3)

(8.8)

0.8

0.8

6.3

Source: Refinitiv. Note: All % on a total return basis in pounds sterling. *MSCI AC World since 1 February 2020, previously a less broad global index.

Exhibit 6: Share price and NAV total return performance, relative to indices (%)

 

One month

Three months

Six months

One year

Three years

Five years

10 years

Price relative to benchmark

2.9

6.8

(3.3)

(10.0)

(19.6)

(11.5)

(14.4)

NAV relative to benchmark

4.6

8.7

(1.4)

(9.5)

(14.8)

(8.7)

(15.1)

Price relative to MSCI AC World

2.9

6.8

(3.3)

(10.0)

(19.6)

(10.7)

(12.7)

NAV relative to MSCI AC World

4.6

8.7

(1.4)

(9.5)

(14.8)

(7.9)

(13.4)

Price relative to CBOE UK All Companies

3.3

0.4

(7.1)

(14.7)

(8.1)

12.5

41.0

NAV relative to CBOE UK All Companies

5.0

2.2

(5.3)

(14.2)

(2.6)

16.1

39.9

Source: Refinitiv, Edison Investment Research. Note: Data to end-December 2022. Geometric calculation. Note: Benchmark is MSCI AC World since 1 February 2020, previously a less broad global index.

MNP’s difficult performance over the last 12 months has negatively affected the trust’s longer-term record and it is lagging its benchmark in both NAV and share price terms over the last three, five and 10 years. On a brighter note, it is worth noting MNP’s meaningful outperformance versus the broad UK market over the last five and 10 years, illustrating the potential benefits of investing overseas.

Exhibit 7: Investment trust performance to 31 January 2023

Price, NAV and benchmark total return performance, one-year rebased

Price, NAV and benchmark total return performance (%)

Source: Refinitiv, Edison Investment Research. Note: Three-, five- and 10-year performance figures annualised.

Osmani explains that over the last 12 months, in general, investors have been selling long-duration stocks and switching into value names, which are not represented in MNP’s portfolio; energy stocks have performed particularly well in response to higher oil and gas prices, and the trust has a zero weighting to the sector. Holdings that have made positive contributions to MNP’s performance include Linde (the world’s largest industrial gas producer) and CSL (an Australian multinational specialty biotechnology company).

Detractors to the trust’s performance include materials firm Kingspan Group, whose share price declined due to the company’s exposure to the construction cycle despite its operations remaining robust. WuXi Biologics is a Chinese company with global operations. The firm was put on a restricted list of unverified exporters by the US authorities and had to wait for its US production sites to be approved. Also, there were increased tensions between the United States and China, which caused widespread weakness in Chinese stocks. WuXi was removed from the restricted list in December 2022, its operations are strong and its stock price has rallied since the end-October low point. NVIDIA has had earnings downgrades due to a weakening semiconductor cycle because of declining consumer spending and lower crypto mining demand, and inventories of gaming products are high. MNP’s healthcare exposure is in medtech companies, which the manager says have been put in the same ‘bucket’ as technology businesses. Large-cap pharma stocks have outperformed, and the trust does not have any exposure to these due to Osmani’s concerns including drugs coming off patent, generic threats and pricing pressure.

Exhibit 8: NAV total return performance relative to benchmark over 10 years

Source: Refinitiv, Edison Investment Research

Osmani is very happy with MNP’s exposure to structural growth companies with expected high or improving returns on capital, pricing power and strong balance sheets. He continues to invest with a five- to 10-year horizon. Most of the largest detractors to MNP’s performance over the last 12 months are high-conviction positions and remain in the portfolio.

Peer group comparison

The 14 peers in the AIC Global sector have a wide range of market caps, and MNP is one of the smallest. According to Osmani, clients are very happy with the trust’s process of investing in high-quality growth companies and are willing to tolerate periods of volatility, which comes from MNP’s relatively concentrated portfolio. He says that within the sector, the trust is leading the way in ESG. The manager comments that unlike MNP, some of its peers hold companies that are loss-making, and their share prices have been weak due to recessionary fears. Other differentiating features of the trust are its lack of exposure to any of the FAANGs and its active zero-discount policy.

Exhibit 9: AIC Global sector at 1 February 2023*

% unless stated

Market
cap £m

NAV TR
1 year

NAV TR
3 year

NAV TR
5 year

NAV TR
10 year

Discount
(ex-par)

Ongoing
charge

Perf.
fee

Net
gearing

Dividend
yield

Martin Currie Global Portfolio

246.6

(8.8)

13.4

43.8

164.7

(3.0)

0.7

No

111

1.3

Alliance Trust

2,912.6

0.7

27.3

45.2

172.0

(6.9)

0.6

No

104

2.4

AVI Global Trust

969.1

(0.2)

33.6

44.6

133.7

(9.8)

0.9

No

102

1.7

Bankers

1,335.7

(1.0)

23.4

41.7

177.1

(9.1)

0.5

No

108

2.3

Blue Planet Investment Trust

3.5

(52.1)

(75.6)

(73.7)

(62.5)

(32.8)

5.2

No

128

7.4

Brunner

444.0

2.3

32.0

48.9

162.8

(13.9)

0.6

No

104

2.1

F&C Investment Trust

4,945.6

(0.1)

31.3

48.5

191.3

(1.9)

0.5

No

107

1.4

Keystone Positive Change Inv

130.4

(3.2)

(30.0)

(27.7)

19.2

(17.9)

0.9

No

109

5.3

Lindsell Train

200.6

(4.4)

9.8

65.1

387.9

(4.8)

0.8

Yes

100

5.3

Manchester & London

139.7

(26.6)

(17.5)

2.9

47.3

(20.0)

0.7

Yes

100

4.0

Mid Wynd International Inv Trust

474.0

(5.0)

29.0

56.5

232.4

(2.6)

0.6

No

101

1.0

Monks

2,379.4

(7.8)

22.8

44.3

201.2

(11.7)

0.4

No

105

0.2

Scottish Mortgage

10,569.2

(22.4)

44.7

86.4

422.8

(15.9)

0.3

No

115

0.5

Witan

1,534.4

(2.7)

15.3

23.2

143.2

(9.8)

0.7

Yes

113

2.5

Average (14 funds)

1,877.5

(9.4)

11.4

32.1

170.9

(11.4)

1.0

108

2.7

MNP rank in peer group

10

11

10

9

8

3

8

4

11

Source: Morningstar, Edison Investment Research. Note: *Performance data to 31 January 2023 based on ex-par NAV. TR = total return. Net gearing is total assets less cash and equivalents as a percentage of net assets (100 = ungeared).

Funds employing a growth-focused strategy had a tough time in 2022 as investors gravitated towards more cyclical and value names. These include MNP and Baillie Gifford funds Monks and Scottish Mortgage. MNP’s NAV total returns rank 11th out of 14 funds over the last 12 months, 10th over the last three years, ninth over the last five years (all three periods are above the sector averages) and eighth over the last decade. It should be noted that the trust only restarted the use of gearing in November 2020. On 1 February 2023, MNP had the third-highest valuation (in terms of discount to NAV) in the peer group. The trust has a competitive, below-average ongoing charge and its net gearing is above the mean. MNP’s focus on capital growth, rather than income, means it has a below-average dividend yield.

Dividends: Steady since FY17

MNP pays quarterly dividends in July, October, January and April. The annual distribution has been 4.20p per share for the last six financial years. So far in FY23, three quarterly dividends of 0.90p per share have been declared, which are in line year-on-year.

At the June 2022 AGM, shareholders approved the payment of dividends from realised capital gains. The board believes that this allows more flexibility, facilitating the payment of an appropriate dividend, without constraining the manager with an income target. There is no intention to change the current dividend policy. At the end of H123, MNP had c £186.5m in realised capital gains and c £1.7m in revenue reserves. Combined, these distributable reserves equate to more than 50x the last annual dividend payment.

Based on its current share price, MNP offers a 1.3% yield.

Exhibit 10: Dividend history since FY17

Source: Bloomberg, Edison Investment Research

Valuation: Long-term zero-discount policy

Exhibit 11: Discount over three years (%)

Exhibit 12: Buybacks and issuance

Source: Refinitiv, Edison Investment Research

Source: Morningstar, Edison Investment Research

Exhibit 11: Discount over three years (%)

Source: Refinitiv, Edison Investment Research

Exhibit 12: Buybacks and issuance

Source: Morningstar, Edison Investment Research

MNP’s board has employed a zero-discount policy since 2013, aiming to ensure that, in normal market conditions, the trust’s shares trade close to NAV. Renewed annually, the board has authority to repurchase up to 14.99% of MNP’s shares and allot up to 10% of its issued share capital in order to manage a discount or premium. As shown in Exhibit 12, share buybacks have accelerated in FY23; so far c 10.5m shares (c 12.1% of the share base) have been repurchased, and held in treasury, at a cost of c £32.7m. No shares have been issued so far in FY23 reflecting continuing difficult market conditions.

MNP’s shares are trading at a 1.3% discount to cum-income NAV, compared with a range of a 2.2% premium to a 4.7% discount over the last 12 months. The trust has traded at average discounts of 1.4%, 0.3%, 0.4% and 0.6% over the last one, three, five and 10 years respectively.

Fund profile: High-conviction global equity portfolio

Launched in March 1999, MNP is listed on the Main Market of the London Stock Exchange. Zehrid Osmani, who has 24 years of investment experience, has been lead manager since 1 October 2018. He was formerly a senior portfolio manager and head of European equities research at BlackRock, with a proven track record in fundamental research and unconstrained investment. He is head of Martin Currie’s global long-term unconstrained (GLTU) team.

Martin Currie is now a division of Franklin Templeton Investments following the acquisition of its former parent Legg Mason on 31 July 2020. The company maintains its autonomy and its investment philosophy and processes remain unchanged.

Since 1 February 2020, MNP’s objective has been to generate a total return in excess of the total return of the MSCI AC World Index (previously a capital return in excess of a less broad global index). Its investment policy is as follows:

To invest predominantly in listed global equities of quality growth companies with superior share price appreciation potential, based on projected ROIC, balance sheet strength and sustainable business models.

To manage a high-conviction portfolio with typically 25–40 positions, held for the long term.

To spread risk via a portfolio that is diversified by type of company and sources of revenue. No more than 10% of total assets may be invested in a single stock.

To fully integrate ESG criteria into fundamental analysis when assessing business models.

To exclude investments identified through the manager’s proprietary ESG risk assessment as having a high level of sustainability or governance risk.

To potentially use debt to enhance shareholder returns. Gearing will not exceed 20% of net assets at the time of drawdown.

To not invest in other listed closed-end funds.

The board monitors MNP’s success via three key performance indicators:

NAV performance versus the benchmark over a rolling three-year period – achieved in FY22, outperformance of 1.6% (albeit meaningfully lower than the 19.4% outperformance in the three years to the end of FY21).

Top-third share price performance versus the peers in the AIC Global sector over a rolling three-year period – achieved in FY22, fifth out of 15 funds.

Ongoing charges (excluding performance fees) of less than 0.70% per year – achieved in FY22, 0.68%.

Investment process: Three-step, bottom-up approach

Osmani is head of Martin Currie’s nine-strong GLTU team and is supported by a wider group of more than 30 investment professionals who meet hundreds of companies every year. He aims to generate a total return above that of the MSCI AC World Index by focusing on high-quality, undervalued growth stocks with the potential to outperform consistently. The manager has an unconstrained, high-conviction approach and invests with a long-term, five- to 10-year horizon. At end-December 2022, there were 29 holdings in the portfolio. There is a systematic three-step investment process that builds conviction at each stage:

Idea generation: the total universe of c 2,800 listed global stocks is screened down to an investible universe of c 500 companies and then a research pipeline of 90+ names is prioritised to identify companies with a combination of quality, sustainable growth and an attractive valuation. The GLTU team believes that companies that can generate a high and sustainable ROIC, above their weighted average cost of capital, can generate above-average total returns over the long term.

Fundamental analysis is based on eight key criteria: industry analysis, a company’s growth drivers, returns, financial strength, accounting, corporate ethos, ESG profile and valuation. Businesses are assessed on a scale of 1 (lowest risk) to 5 (highest risk) across a wide range of measures. As part of the process there is a systematic risk assessment focusing on industry risks, company risks, governance and sustainability, and portfolio risks. A newer upgrade to this process is an assessment of a company’s workforce risk, looking at bottlenecks in the skilled labour force and the resulting risk of wage inflation. Companies considered for inclusion in the portfolio are likely to have a dominant position and pricing power in a market with high barriers to entry. The manager seeks businesses with structural growth prospects, high returns on invested capital, strong cash flow generation and a quality management team with a strong corporate culture. To ensure a consistent approach, a proprietary research template is compiled for companies reviewed, and each is given a conviction rating between 1 (strong buy) and 5 (sell).

Portfolio construction: each position is weighted appropriately, aiming to ensure a meaningful contribution to the fund’s returns. Osmani and his team break down the portfolio by geographic revenue and profit rather than where a company is listed, to understand the fund’s exposure by economic value (it is overweight developed and underweight emerging markets). The portfolio is also assessed in terms of end-user exposure at a tier one level – the consumer, business and government – and then at a more detailed tier two level focusing on individual sectors and industries. Stocks may be sold when they have reached their price target, if they are nearing their price target and there are better risk/reward opportunities elsewhere, or if the high-conviction investment case no longer holds true.

MNP’s portfolio has a high active share (99.1% at end-December 2022); this is a measure of how a fund differs from its benchmark, with 0% representing full index replication and 100% showing no commonality. Compared with the MSCI AC World Index, in aggregate, the trust’s holdings have higher forecast revenue, earnings and dividend growth, higher valuations in terms of forward P/E and EV/EBITDA multiples and a higher ROIC. These relative metrics reflect MNP’s biases towards growth and high-quality companies with pricing power. Portfolio turnover is typically up to 20% pa, implying a holding period of around five years.

Osmani believes attractive operations in three thematic areas (the future of technology, resource scarcity and demographic changes) will span multiple decades. These include:

Green and alternative energy – trends are accelerating due to the war in Ukraine (future of technology, resource scarcity).

Energy-efficient infrastructure (future of technology, resource scarcity).

Electric transportation – high-speed railways and electric vehicles (future of technology, resource scarcity).

Healthcare infrastructure (future of technology, demographic changes).

5G telephony (future of technology, resource scarcity).

Cloud computing and cyber security (future of technology).

Robotics and automation (future of technology, resource scarcity).

Metaverse and quantum computing (future of technology).

The manager says that the GLTU team’s approach is to keep in constant touch with portfolio companies, along with other relevant contacts, thereby gaining deeper knowledge. He highlights that the group has great access to senior managers despite having a relatively modest amount of assets under management.

MNP’s approach to ESG

ESG factors have been an integral part of MNP’s investment process for many years. Martin Currie has held a United Nations triple A+ rating for the last five years for strategy and governance, incorporation and active ownership, which are the three categories in the United Nations Principles for Responsible Investment (UN PRI). The company first became a UN PRI signatory in July 2009.

Martin Currie believes that good ESG practices are a fundamental component of a high-quality company. Factors considered by Osmani and his team typically include shareholder rights, accounting standards, remuneration, board structure, supply chain, data protection, pollution/hazardous waste policies, water usage and climate change policies. Their findings may influence important financial assumptions about a company, such as its cost of capital, revenues or costs, and therefore an estimate of its intrinsic value; a poor ESG track record may indicate wider sustainability issues within a firm. Osmani strongly believes that including ESG analysis in investment decisions delivers improved returns for MNP’s shareholders. On a practical level, the manager and his team evaluate, measure and risk assess 60 individual areas for every company that they research. They also focus on an additional 20 assessments related to social exploitation risk, including criteria that examine the countries in which the company operates, the supply chain, gender/age/racial exploitation and working conditions, alongside the firm’s overall momentum in tackling social exploitation.

Gearing

MNP did not employ gearing between 2008 and 2020. However, on 23 November 2020 the board announced that it had entered into a £30m three-year unsecured sterling term loan facility with Royal Bank of Scotland International. This was fully drawn down the following day at a fixed interest rate of 1.181% pa and equated to c 10% of MNP’s NAV. If the debt facility is rolled over in November 2023, it is likely to be at a higher interest rate but the board is confident that the manager can generate annual returns above the trust’s cost of debt over the long term, meaning that the use of gearing should contribute positively to MNP’s results.

At end-December 2022, net gearing was 11.7%.

Fees and charges

With effect from 1 February 2021, MNP’s performance fee was discontinued, and the investment management fee was changed to 0.50% per year on the first £300m of ex-income NAV and 0.35% of ex-income NAV above this level (previously a flat fee of 0.40%), calculated and payable quarterly.

There has been a further change in MNP’s fee structure. With effect from 1 July 2022, the investment management fee was amended to 0.45% of NAV. Also, there is no longer a separate company secretarial fee (£56k + VAT in FY22, and subject to an annual increase at the rate of UK inflation). The effects of these changes on a c £250m asset value fund would lead to a c 14% reduction in annual fees and a simpler cost structure.

In H123, MNP’s ongoing charges were 0.64%, which was 4bp lower than 0.68% in FY22.

Capital structure

MNP is a conventional investment trust with one class of share – there are c 76.0m ordinary shares in issue, with a further c 22.7m held in treasury. At end-FY22, the trust’s equity capital was split as followed: 75.8% banks and nominee companies, 11.2% individuals and trustees and 13.0% other holders. Over the last year, MNP’s average daily trading volume was c 130k shares.

Exhibit 13: Major shareholders

Exhibit 14: Average daily volume

Source: Bloomberg. Note: At 31 December 2022.

Source: Refinitiv. Note: 12 months to 1 February 2023.

Exhibit 13: Major shareholders

Source: Bloomberg. Note: At 31 December 2022.

Exhibit 14: Average daily volume

Source: Refinitiv. Note: 12 months to 1 February 2023.

The board

Exhibit 15: MNP’s board of directors

Board member

Date of appointment

Remuneration in FY22

Shareholdings at end-FY22

Gillian Watson (chairman since 1 February 2021)

1 April 2013

£40,000

3,329

Gary Le Sueur

1 December 2016

£26,500

31,735

Marian Glen

1 December 2016

£33,000

Nil

Christopher Metcalfe

19 September 2019

£26,500

8,600

Lindsay Dodsworth

1 November 2021

£6,625

2,542

Source: MNP

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This report has been commissioned by Martin Currie Global Portfolio Trust and prepared and issued by Edison, in consideration of a fee payable by Martin Currie Global Portfolio Trust. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Martin Currie Global Portfolio Trust and prepared and issued by Edison, in consideration of a fee payable by Martin Currie Global Portfolio Trust. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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