Magellan Financial Group Ltd (ASX: MFG) is well known for providing a slate of investment options for its Australian customer base. You don’t become one of the largest fund managers in the country without a comprehensive suite of investment options, after all.
But something strange has happened to one of Magellan’s flagship funds today. That would be regarding the Magellan High Conviction Trust (ASX: MHHT). As the name implies, this fund holds only Magellan’s “highest-conviction ideas”, with a “concentrated portfolio invested in 8 to 12 of the world’s best global stocks”. In contrast, the popular Magellan Global Fund (ASX: MGF) has a portfolio of “20 to 40 of the world’s best global stocks”.
In exchange for the higher management fee of 1.5% (compared to the 1.35% for the Global Fund), the concentrated High Conviction Trust has no benchmark. It instead focuses on “risk-adjusted returns”. It also has unlimited hedging capacity, as well as no limit on its minimum or maximum cash position.
Papa’s got a brand new… ticker code
But investors in Magellan’s High Conviction Trust may have noticed something strange this morning. They have woken up with a different investment from what they had when they went to sleep. That’s because, as of today, the Magellan High Conviction Trust has changed from a closed-ended Listed Investment Trust (LIT) to an open-ended actively managed exchange-traded fund (ETF). To reflect this change, this fund now has the new ticker code of ‘MHHT’, as opposed to the old ‘MHH’.
This move shouldn’t have been unexpected though. Magellan first flagged it back in early July, and gave the final green light on 26 August after receiving approval from the ASX.
So why is Magellan changing one of its popular funds? Well, Magellan’s CEO Brett Cairns told us why back in July:
On balance, we believe the benefits for unitholders of reducing the trading discount in MHH outweighs the benefits of MHH remaining as a closed-ended fund. We believe transitioning the fund to an open-ended Active ETF is in the best interests of investors as it will allow direct access to the fund for applications and redemptions and see the units in the fund trade at a tight spread to net asset value going forward.
Why has the Magellan High Conviction Trsut changed its structure?
This makes sense for investors. As a closed-ended structure, the old High Conviction Trust had the potential to trade for less than the fund’s actual worth. This it did, and habitually. The gap between this fund’s net tangible assets (NTA) and share price became so apparent that units of the fund were acquired by Geoff Wilson’s new Listed Investment Company (LIC) WAM Strategic Value Ltd (ASX: WAR). As we covered at the time of this purchase, WAM Strategic Value’s whole purpose is to find undervalued assets in similar scenarios.
However, the new open-ended structure will allow the Magellan High Conviction Trust to consistently trade in line with the NTA of the underlying fund, as Mr Cairns pointed out above.
This shift in strategy seems to be working too. Magellan’s High Conviction Trust last traded under its old ticker and structure on 26 August. Back then, the unit price for MHH shares closed at $1.775 a unit. Today, upon the new MHHT debut, this now-ETF is asking a unit price of $1.825 at the time of writing. That’s pretty much in line with its current NTA per unit.
The post Why did Magellan High Conviction Trust (ASX:MHH) just morph into an active ETF? appeared first on The Motley Fool Australia.
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Motley Fool contributor Sebastian Bowen owns shares of Magellan High Conviction Trust. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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