Potential resilience in a high-tariff environment: Mid Wynd International

Mid Wynd International (MWY) aims to provide investors with a concentrated Portfolio of high-quality companies, selected on a bottom-up basis. Managers Louis Florentin-Lee and Barnaby Wilson focus on companies capable of delivering high financial productivity, operating in industries with high barriers to entry, and having opportunities to reinvest their cash flow to fuel their growth.

Examples of the types of companies held include new holdings Boston Scientific, a medical devices manufacturer (e.g. heart valves and catheters) and Palo Alto Networks, a company in the cybersecurity space. Both companies operate in non-cyclical industries, are dominant in their respective markets, have moats protecting them from new entrants, and have opportunities to reinvest their cash flows.

Performance has been challenging since the start of the year, as the strategy has faced stylistic headwinds, with the team also acknowledging some stock selection mistakes. That said, following the de-rating of quality names, the team note that their portfolio companies are generally trading at attractive valuations, with nearly half of their holdings trading at the bottom half of their ten-year P/E range.

Meanwhile, MWY increased its Dividend for the 13th consecutive year in FY 2025. However, earnings per share declined year-on-year, reflecting the change in strategy, with FY 2025 being the first full financial year completed under Lazard. The board has stated it will use revenue reserves, and if necessary capital reserves, to maintain or grow the dividend going forward.

In our view, MWY could be an attractive option for investors with conviction that the quality factor should outperform over the long term. Louis and Barnaby have stayed true to their investment style despite the headwinds the quality factor has faced since they began managing the trust, providing investors some assurance that the investment philosophy will not be altered due to potentially temporary challenges.

Interestingly, earnings growth of quality stocks relative to the broader market has accelerated since 2024, but their relative valuations have declined this year, suggesting a decoupling of market returns from fundamentals. At the portfolio level, only 9% of holdings command valuation multiples higher than the MSCI ACWI Index, while nearly half trade in the bottom half of their ten-year P/E range. As such, the managers argue the portfolio offers unusually attractive relative value, which could reward investors willing to go against the grain if the market refocuses on fundamentals. While they believe it won’t be obvious when sentiment turns back in favour of quality names, the team suggest that an unravelling of the AI-driven rally, for example, could act as a catalyst.

Finally, the board operates a Discount control mechanism, aiming to keep MWY’s discount within a 2% band relative to NAV by using share buybacks. For instance, over the past 12 months, c. 28% of the shares in issue at the start of the period have been repurchased. As such, we believe the risk of a large discount developing is low, although we would caution that this elevated level of share repurchases is unsustainable over the long term.