If I were going to buy one ASX share this week then It’d be listed investment trust (LIT) Magellan High Conviction Trust (ASX:MHH).
The post I’d buy this ASX share this week appeared first on Motley Fool Australia. –
ASX shares are a great place to invest your money for long-term growth.
Compound interest is a very powerful force that can help your wealth grow over time. The best ASX shares will help your portfolio grow faster.
It’s hard to say which share will make the best investment, so a diversified option could be the way to go.
I think this ASX share could be a good long-term buy today:
Magellan High Conviction Trust (ASX: MHH)
This is a listed investment trust (LIT) which is operated by the fund manager Magellan Financial Group Ltd (ASX: MFG). I think that Magellan is one of the best fund managers in Australia. Co-founder Hamish Douglass is also the chairman and chief investment officer (CIO).
As an investment outfit, Magellan looks to find quality businesses with a good economic moat. In other words, sustainable advantage over competitors that enable a business to earn superior returns that are well above the cost of capital.
Once Magellan finds a good business, it looks to be a long-term shareholder and benefit from compound returns.
Magellan also takes into account macroeconomic analysis and risk management to construct portfolios that aim to generate attractive returns over the medium to long term.
About the ASX share specifically
This LIT gives investors specific exposure to Magellan’s high conviction ideas. It typically owns between 8 to 12 names.
If you own the best businesses in your portfolio then they should be able to deliver good long-term returns for investors.
Magellan says: “While Magellan is extremely focused on fundamental business value, it is not a typical ‘value’ investor. The Magellan High Conviction Trust will invest in companies that have relatively high price-to-earnings and price-to-book multiples, provided that their businesses are outstanding and their shares are trading at an appropriate discount to their assessed intrinsic value.”
What shares does it own?
Each month the ASX share gives an update to say what its five largest holdings are. At the end of September, its biggest positions were: Alibaba, Alphabet, Microsoft, Starbucks and Tencent. It also had a 20% cash position, so the portfolio has a defensive posture at the moment.
At the end of FY20 it revealed its other positions were Facebook, SAP, Visa and Estee Lauder.
I think that’s a high-quality group of names that can all go on to deliver strong returns over the coming years.
Of course, the portfolio is likely to change a few names as time goes on, which means the ASX share is adaptable to the future.
What are the management fees?
There’s no doubt that it has pretty high fees for an investment portfolio with annual management fees of 1.5% per annum. This is a pretty big drawback from net returns.
It also has a performance fee of 10% of the excess return above an ‘absolute’ return goal of 10% per annum. The performance fees are subject to a high water mark.
Of course, it’s the performance after fees that is the most important number for investors.
Since inception in October 2019, it has delivered a net return of 9.5%. Not bad considering that includes the COVID-19 crash.
Is it a good buy today?
Closed-ended LITs like Magellan High Conviction Trust sometimes trade at a discount to their net asset value (NAV). That means you can buy $1 of shares for less than $1.
Using the ASX share’s indicative NAV of $1.65, the current Magellan High Conviction Trust share price is valued at a 6.7% discount.
That’s not a huge discount, but I think it’s attractive enough to buy a parcel today and buy more on any weakness over the coming weeks with the US election.
Man who said buy Kogan shares at $3.63 says buy these 3 ASX stocks now
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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.