At the current share price, I’d buy MFF Capital Investments Ltd (ASX:MFF) shares this week. I believe the LIC is well-positioned.
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I think the MFF Capital Investments Ltd (ASX: MFF) share price is a buy at the current level. The listed investment company (LIC) seems well positioned to me.
What is a LIC?
The job of a LIC is to invest in other assets on behalf of shareholders. Most of the time LICs invest in shares, but investment businesses can invest in other assets like bonds, property or anything else a company can invest in.
What about MFF Capital?
MFF Capital is reasonably old when it comes to the LIC sector, it has been going for well over a decade.
These days it is managed by Magellan Financial Group Ltd (ASX: MFG) co-founder Chris Mackay. I think Mr Mackay was one of the best fund managers in the 2010s. He was right to heavily allocate money to the US market as the share market there performed strongly and the Australian dollar weakened compared to the US dollar (which improved returns for Australian investors).
MFF Capital aims to invest in businesses which are competitively advantaged and are priced attractively.
The MFF Capital share price has done very well over the past decade. According to CMC, its total shareholder return over the past 10 years has been an average of 17.6% per annum.
What type of shares is MFF Capital invested in?
Two of MFF Capital’s best investments have also been two of its largest and longest-held. At the end of August 2020, 18.7% of its portfolio was invested in Visa shares and 17.9% was invested in Mastercard shares.
More than a third of the portfolio is invested in those two payment businesses. I think that’s a good call with the rise of e-commerce and cashless transactions.
Home Depot is the only other ‘high’ conviction idea with a 9.6% weighting.
Other investments with an investment of more than 0.5% of the portfolio at the end of last month were: CVS Health, Berkshire Hathaway, Microsoft, Flutter Entertainment, CK Hutchison, JP Morgan Chase, Lloyds Banking, Lowe’s and US Bancorp.
I think the above names could help the MFF Capital share price continue its good long-term performance.
Why I think MFF Capital is worth buying today
MFF Capital has been a great investment over the past decade. It currently has a very large cash position – at 31 August 2020, 37.9% of its portfolio was net cash. That’s very defensively positioned and most of that cash is in US dollars.
The Australian dollar is weakening compared to the US dollar. It’s being speculated that the Reserve Bank of Australia (RBA) may cut the interest rate a little further than the already low rate of 0.25%. That may increase MFF Capital’s value in Australian dollar terms.
I also think that as the US election gets closer, and in the short-term after the election, there could be some market volatility. MFF Capital could be mostly protected from the volatility with its cash position and it could snap up share opportunities with that same cash pile.
Mr Mackay has expertly steered MFF Capital through the last decade and I think a prudent approach for the next six months to twelve months is the right thing considering all of the uncertainty relating to COVID-19 (and the election). It’s not guaranteed that the global economy will bounce back as some people are hoping it will.
I do believe you need to be positive about the long-term, but being cautious in the short-term could be the right thing to do.
At the current MFF Capital share price it’s trading at a 7% discount to the pre-tax net tangible assets (NTA) at 18 September 2020. I think that’s an attractive price to buy shares today.
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Motley Fool contributor Tristan Harrison owns shares of Magellan Flagship Fund Ltd. 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.