Magellan Asset Management announced yesterday (1 July 2021) its intention to transition the Magellan High Conviction Trust (MHH) from a LIT to an ETMF. Should this receive unit trust approval (meeting intended to be held in the September quarter), MHH will be the second LIC/LIT to convert following the recent conversion of MA1 to MAAT.
MHH’s discount to NTA had been languishing (at least until WAR took a stake) and partly due to poor relative performance post March 2020. The expected timeframe of the conversion is a bit of an unknown currently, but it will no doubt be a lot quicker than that of MA1 which was held up by the ASIC review into Active ETFs, then general Covid staffing disruptions at the regulator / ASX, then the ASX adopting a cautionary approach to the MA1 conversion given it was the first.
With the discount to NTA having narrowed recently, it was probably an opportune time to do so – it presents less of an arb opportunity for those investors, like Sandon Capital, that may have been inclined to do so. And less arb trades on the books means less FUM loss on day 1 of the conversion to an ETMF. Not that Magellan would be overly concerned either way given its sheer FUM scale.
Very tidy profit for WAR if you annualise the return. This is also the case regarding its involvement in TGG, which RRM has written about.
Does this portend further conversions to ETMFs? Potentially, but there is a lot of factors at play for each and every LIC/LIT manager to consider and RRM believes most managers will not to go down this route. The conversion of MHH makes a lot of sense for Magellan (been down the ETMF route, know the process, understand that being an ETMF provides better future proofing, and they don’t run potential reputational risk from a vehicle trading at a material discount to NTA).