3 reasons why I own Magellan Global Trust shares

Tristan Harrison | November 15, 2017 8:17am | More on: MFG

There are many listed investment companies on the ASX which focus on our large domestic businesses like Commonwealth Bank of Australia (ASX: CBA), Telstra Corporation Ltd (ASX: TLS) and Wesfarmers Ltd (ASX: WES).

However, there are very few closed-end listed entities which purely focus on overseas investments.

Magellan Financial Group Ltd (ASX: MFG) has been running a very successful managed fund which has soundly beaten the market. In-fact, over the last five years the Magellan Global Fund has returned an average of 18.53% per annum after fees.

However, the unlisted fund isn’t a great source of income and it isn’t as easy to access as the new Magellan Global Trust (ASX: MGG). Here are three reasons why I thought the new trust was worth an investment:

Income yield

Australia is known for having very generous dividends, however it’s different overseas. Global companies listed in the USA re-invest a lot more of their profits.

Magellan management have decided to have a goal distribution yield of 4% of net tangible assets per unit over the long-term. This should provide investors with a good combination of income and growth.

Global superstars

The ASX may have a few top-quality stocks but most of them pale in comparison to the best companies in the world.

Apple, Alphabet, Ebay, Microsoft, Visa and others are truly global superstars that Australian investors are missing out on if they’re not directly or indirectly invested.

Magellan Global Trust gives investors that exposure and should also be able to move into other businesses when they come along.

Potentially safer?

A fair question might be to ask why not just invest in the unlisted fund?

The unlisted fund only has the flexibility of holding cash up to 20% of the portfolio. The trust actually has the ability to hold cash up to 50% of the portfolio. Therefore, theoretically it should do a better job of protecting an investor’s capital in a market crash.

Foolish takeaway

I think Magellan could provide investors with an impressive total shareholder return over the coming years, which is why I own shares in it.