I think that Magellan Global Trust (ASX: MGG) could be a dream share for a retiree because it offers many things that retirees need.
About Magellan Global Trust
Magellan Global Trust is a listed investment trust (LIT) which invests in global businesses. It’s operated by one of the country’s leading investment managers, Magellan Financial Group Ltd (ASX: MFG).
At the last monthly update it said that the fund size was $2.34 billion of assets.
In terms of fees, it has an annual management and admin fee of 1.35% per annum. This seems fairly high compared to many exchange-traded funds (ETFs), however it’s the net performance that matters most. Some fund managers are worth their fees. Others aren’t.
Here are some of the reasons that retirees may really like Magellan Global Trust:
I think that many Aussie retirees could do with diversifying their portfolios away from Australian shares. There are plenty of good ASX shares, but the ASX only accounts for 2% of the global market capitalisation.
Over the last decade I think it has been quite clear that it’s the international tech blue chips that have generated the best profit growth and shareholder returns. It’s hard to say where the best place for investing will be in the 2020s, but I think owning some high-quality global shares is always a good idea.
It’s that focus on high quality which is exactly what Magellan Global Trust tries to do. It says that it “seeks to invest in a focussed portfolio of outstanding global companies and seeks to purchase investments when they are trading at a discount to their assessed intrinsic value.”
What businesses make it into the portfolio? At the end of August 2020 its largest 10 holdings were (in alphabetical order): Alibaba, Alphabet, Atmos Energy, Facebook, MasterCard, Microsoft, Reckitt Benckiser, Tencent, Visa and Xcel Energy.
Magellan Global Trust tries to build its portfolio with a mix of growth and defensive businesses. That’s why there are some defensive energy businesses in the holdings.
Strong total returns
The LIT has done well since inception in October 2017, it has outperformed the MSCI World Net Total Return Index (AUD) by 1.4% per annum (after all expenses and fees) with an average return per annum of 12.5%.
Those numbers include the COVID-19 crash, which have hurt returns. The unlisted Magellan Global Fund, which is very similar and has been running over a decade, has returned an average of 16.1% per annum over the past 10 years.
Targets a 4% distribution yield
Most retirees are looking for a bit of yield from their portfolio. Too much focus on income could lead to poor capital growth returns, but Magellan Global Trust aims to pay out a 4% distribution yield from its diversified, largely growth-focused, portfolio.
Considering how low interest rates are in Australia right now, I think that’s a solid starting yield which will grow over time if Magellan Global Trust’s net asset value (NAV) per unit grows too.
Is the Magellan Global Trust share price a buy?
At the current Magellan Global Trust share price, it’s trading at a 5.5% discount to the current intraday indicative NAV per unit of $1.8833.
That’s not a large discount, but it’s better than nothing. I think it’s an attractive combination to be able to buy, at a discount, an ASX share that has outperformed the global share market over the past three years by more than 1% per annum.
It offers an attractive yield, international diversification and it’s quite defensive. At 31 August 2020, 16% of its portfolio was cash – which provides protection and ammunition for opportunities in case the global share market falls. I’d be happy to buy some Magellan Global Trust shares today, and buy more on price weakness. The US election could throw up some volatility.