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Magellan Global Trust’s (ASX:MGG) portfolio strikes the right balance of growth and defensive shares

One of my favourite fund investments on the ASX is Magellan Global Trust (ASX: MGG), which is run by Magellan Financial Group Ltd (ASX: MFG).

The aim of the trust is to invest in the highest quality global businesses, hopefully outperform the MSCI World Net Total Return Index over the long-term and prevent permanent capital loss whilst providing a distribution yield of 4%.

It has an expensive management fee of 1.35% per annum, however it discloses all of its returns as after fees. Since inception the Magellan Global Trust portfolio has outperformed the MSCI index after fees.

It runs a very similar strategy to the Magellan Global Fund which has been operating since July 2007 and aims to provide a long-term return of 9% per annum after fees. Over the past decade the Magellan Global Fund has returned an average of 14.9% per annum after fees.

Why I like Magellan Global Trust

Aside from the actual returns, I like the way it aims to create the returns. It has three major areas for its capital:

  • Non-cyclical defensive investments that are resilient to disruption risks and attractively priced when assuming higher interest rates
  • High-growth investments that are likely to be clear winners from change and secular tailwinds over the next five to ten years
  • Cash

The cash element is very important as it gives the portfolio a good chance of outperforming the index when the market goes down. The cash is one of the main reasons why Magellan is able to offer good downside protection.

However, the growth shares help Magellan Global Trust outperform when the share market is going well too. Its growth shares include Alphabet (Google), Facebook, Visa and MasterCard. They could be arguably described as defensive as well – people will continue to use the internet and pay with their cards even in a recession.

It also has quality shares like McDonalds, Costco, Lowe’s and Kraft Heinz that are defensive and could keep growing slowly and steadily.

Foolish takeaway

Despite a scenario described by Hamish Douglass where the global share market could fall by 20% to 30% due to rising interest rates over the next year or two, Magellan Global Trust looks like one of the best ways to outperform the global market over the long-term if you don’t want to choose international shares yourself.

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Motley Fool contributor Tristan Harrison owns shares of MAGLOBTRST UNITS. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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