Last month, Magellan Financial Group Ltd (ASX: MFG) announced its intention to undertake an initial public offering (IPO) for units in a new ASX-listed investment trust, the Magellan High Conviction Trust (ASX: MHH).
The offer, through which Magellan is looking to raise a minimum of $250 million, opened on 21 August 2019 and is expected to close on 27 September 2019.
What Is The New High Conviction Trust?
The Magellan High Conviction Trust will replicate the strategy of the already existing (unlisted) Magellan High Conviction Fund that was established back in July 2013. This fund has achieved returns of 16.6% per annum (after fees) since inception to 31 July 2019.
Accordingly, the newly created Trust will replicate the high conviction strategy of investing in outstanding companies at attractive prices, whilst exercising an understanding of the macroeconomic environment and managing investment risk.
The result will be a concentrated portfolio of 8 to 12 high-quality global companies, weighted towards Magellan’s highest conviction ideas.
As of June 2019, holdings of the high conviction strategy included the likes of Apple Inc. (NASDAQ: AAPL), Starbucks (NASDAQ: SBUX) and HCA Healthcare Inc (NYSE: HCA).
One of the portfolio managers of the new High Conviction Trust will be Hamish Douglass, co-founder and Chief Investment Officer of Magellan. Hamish was interviewed on a recent episode of The Australian Investors Podcast, which you can see a snippet of below:
Click here to watch the full interview.
Benefits Of The Offer
The listed investment trust aims to provide capital growth over the medium to long term with a Target Cash Distribution yield of 3% per annum, paid semi-annually.
A distribution reinvestment plan (DRP) will be made available with Magellan offering a 5% discount to the net asset value (NAV) per unit in respect of the Target Cash Distribution.
The Offer consists of the Priority Offer, the Wholesale Offer, and the General Public Offer. Each of these attract different eligibility criteria and entitle the applicant to receive additional Loyalty Units based on the number of units allocated through the offer as follows:
- Priority Offer: 7.5%
- Wholesale Offer: 2.5%
- General Public Offer: 2.5%
Units will be allocated on 11 January 2020. If you decide to sell units before 31 December 2019, this will affect how many Loyalty Units will be issued.
Being already invested in the Magellan Global Trust (ASX: MGG), I am still deciding whether to participate in the Priority Offer due to similarities between both Trusts.
There is plenty to like about this current offer, especially the fact that MHH will be offering additional Loyalty Units. At this stage, I am currently weighing up both the management (1.5%) and performance (10% of excess returns above 10%) fees before making my final decision as to whether to take up the Priority Offer.
Disclosure. At the time of writing, the author of this article owns units in Magellan Global Trust (ASX: MGG) and is eligible to participate in the Priority Offer for the Magellan High Conviction Trust (ASX: MHH)