I’m not a fan of FTSE investment trusts whose portfolios are so diversified that they start to look too index-like. I am talking about those who have hundreds of stocks in them.
If the portfolio is likely to function as an index (or worse), what’s the point? I might buy an index. It can be cheap, as no professional stock picking team needs to be paid (usually well).
looking at Manchester & London Investment Trust (LSE: MNL), however, no one can blame you for staying on the phone. Probably the most focused technical portfolio I’ve come across.
It’s all about the AI revolution
As of October, the trust had just over 74% of its portfolio in four stocks. At the top was the chip maker Nvidiawith a heavy weight of 37.7%, followed by 23.7% of goods Microsoft.
That’s 61.4% in just two stocks! In fact, the total weight of the top 10 stocks is 98.7%.
Here we are:
| Catching up | Weight (%) |
|---|---|
| Nvidia | 37.7% |
| Microsoft | 23.7% |
| Advanced Micro Devices (AMD) | 7.2% |
| Alphabets | 5.8% |
| Arista Networks | 5.7% |
| Broadcom | 5.1% |
| ASML | 4.4% |
| Synopses | 3.6% |
| Micron technology | 3.2% |
| The Oracle | 2.3% |
| Total | 98.7% |
As we can see, the portfolio focuses on betting everything on the future of the technological revolution, especially stocks related to artificial intelligence (AI).
Nvidia is the leading AI chip maker, powering the entire revolution. One Wall Street analyst recently put it this way “will be the most important company in our civilization in the next decade“.
Meanwhile, Microsoft operates the Azure cloud platform, as well as being a significant shareholder in OpenAI, the maker of ChatGPT.
Advanced Micro Devices is another leading chipmaker, competing with Nvidia, while Google (owned by Alphabets) is also a cloud giant and developer of advanced AI models.
The trust believes that “the era of AI is in its infancy“, and that the final AI winners will be “counting with the fingers of both hands“. Hence the great suffering.
Big discount
The Manchester and London Investment Trust currently trades at a huge 18.7% discount to its net asset value (NAV). This suggests that it is significantly undervalued relative to its underlying portfolio.
However, in its October fact sheet, the trust said: “It seems inevitable that UK Equities income will continue to wither. As such rates may decline and capital may dry up. For Investment Trusts, ceteris paribus, that means big discounts…So please don’t email us asking why we let this happen and what we’re going to do about it..”
Personally, I think it’s a good thing here that Mark Sheppard, the lead fund manager, and his team aren’t beating the bush.
They frankly state the risk that the NAV discount may not be reduced because UK equity purchases will “definitely” remain weak. This is not so certain, but it is possible.
Can I invest in shares?
To invest in this trust, one must be VERY bullish on Nvidia and Microsoft. Any weakness in that and trust may be dysfunctional. There is a high risk of concentration, with 80% of assets in five stocks.
On the other hand, the trust may succeed if the two perform well, which happened last year. In the 12 months to 31 July, net return on NAV per share was 55.4%, breaking even. Nasdaq the index is 23.9%.
As things stand, I think my portfolio has enough exposure to tech/AI stocks. However, this could be something to consider for investors looking for a discounted, high-stakes way to play the AI revolution.
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