I have sold my MGF units IRL and Strawman. The discount to NTA has significantly closed to within 2% of NTA compared to some of my purchases of units at 20%+ discount.

While conversion to open units is likely which will mean effectively nil discount to NTA. For simplicity I have decided to sell out now prior to this occurring. Besides the hassles with conversion and potential lock up of funds for a couple weeks during conversion. The main reason for not converting is I don't believe Magellan will outperform the benchmark ongoing, though to be fair it has met its absolute return goal of 9%+ since inception. Simply, Magellan isn't the Magellan it used to be in my view. The culture must have changed with what has gone on at a corporate level over the last few years. I see the MOAT and QLTY ETFs as a more attractive investment (especially given MGF's high fees) which is where I will be redirecting some of my funds from the sale of MGF.

When I started out investing, I was very interested in LIC's at a discount to NTA, looking to pick up $1 for 70c. However, I didn't realise I need to ask how this discount was going to change? MGF is an example where this has worked but as I have learnt over time this isn't normally the case, things trade at a discount for a reason. For discounts to NTA to close, there must be a catalyst, in this case it was the aggressive share buyback of units then the announcement to convert to open class units. This only occurred because of the manager was willing to lower their profits in the interest of unitholders which is hard to do for any manager. If Magellan weren't willing to convert to open units, MGF unit holders could still be sitting at significant discount to NTA in my opinion.

The MGF fund buy backs have now reached 17.2% of units (or $349.5 million worth) since inception (November 2020) according to the latest fund update. A positive sign as a holder that the manager is willing to give up such a substantial portion of locked up capital to try an improve performance. However, performance is still below the set benchmarks of the fund. The fund continues to trade at more than a 20% discount to NTA. Given the buybacks have occurred while the discount has been significant this should leverage returns of the fund on a per unit basis if performance returns. I am still happy to hold as I still can't bet against the major holdings beating the S&P 500 over the longer term, especially if I can buy a basket of them at a 20%+ discount to the market price.

Major holdings as of 31/10/22:

Disclosure: Hold IRL and Strawman, looking to add to position.

Magellan Global Fund (MGF) continues to underperform the index benchmark of MSCI World Net Total Return index (AUD) over the shorter term. Using the open class units (due to the much longer history of this structure) performance Magellan does still beat the index over the longer periods even with the recent poor performance. To note is that Magellan targets a 9% absolute return for these funds and continues to meet this benchmark over the longer term.

The MGF (closed unit) fund is currently trading at a discount to NTA of 15% (and has been trading in this range for a while). The fund released a notice this week notifying that the buy backs of units since 19/10/21 totaled around 10-12% of the units on issue. This is a significant buyback at a large discount which gives unit holders instant value creation buying $1 worth of assets for 85c. This should also result in better returns for closed unit holders in the future, IF Magellan can return to the previous high-performance manager they were.

Is it time to give up on the fund given the poor performance? There are two main reasons I have not done so and these reasons continue to hold true from my point of view:

• Investors who invest in managed funds tend to underperform the performance of those funds because they invest when the fund is doing well and then exit when it is doing poorly. Ie buying high and selling low. You should be in a fund of the strategy not because of the performance.
• Would I bet against the portfolio of shares within the fund not making a 9% return compound over 5+ years (including after MGF large fee)? The answer is certainly not! MGF holds some of the world's largest high-quality companies. The image below contains the most recent portfolio update and weightings.