I’m not a fan of FTSE investment trusts whose portfolios are so diversified that they start to look a lot like an index. I’m talking about those that have hundreds of stocks in them.
If the portfolio is likely to perform like an index (or worse), what’s the point? I may as well just buy the index. It’d be cheaper, as there’s no professional stock-picking team that needs paying (often handsomely).
Looking at Manchester & London Investment Trust (LSE: MNL), however, nobody can accuse it of sitting on the fence. It’s probably the most concentrated technology portfolio I’ve come across.
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Going all-in on the AI revolution
As of October, this trust had just over 74% of its portfolio in four stocks. At the top was chipmaker Nvidia, with a mammoth 37.7% weighting, followed by 23.7% of assets in Microsoft.
That’s 61.4% in just two stocks! In fact, the total weighting of the top 10 stocks is 98.7%.
Here they are:
| Holding | Weighting (%) |
|---|---|
| Nvidia | 37.7% |
| Microsoft | 23.7% |
| Advanced Micro Devices (AMD) | 7.2% |
| Alphabet | 5.8% |
| Arista Networks | 5.7% |
| Broadcom | 5.1% |
| ASML | 4.4% |
| Synopsys | 3.6% |
| Micron Technology | 3.2% |
| Oracle | 2.3% |
| Total | 98.7% |
As we can see, the portfolio is basically on all-in bet on the future of the technological revolution, particularly stocks related to artificial intelligence (AI).
Nvidia is the leading AI chipmaker, powering the whole revolution. One Wall Street analyst recently said it “will be the most important company to our civilisation over 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 Alphabet) is also a cloud giant and developer of advanced AI models.
The trust believes that the “era of AI is in its youth“, and that the ultimate big AI winners will be “counted on the fingers of two hands“. Hence the massive concentration.
A large discount
Manchester and London Investment Trust currently trades at a hefty 18.7% discount to net asset value (NAV). This suggests it’s significantly undervalued relative to its underlying portfolio.
However, in its October fact sheet, the trust said: “It seems inevitable that the inflows into UK Equities will wither further. As such valuations may drop and liquidity may dry up. For Investment Trusts, ceteris paribus, that means larger discounts…So please don’t email us asking why WE have allowed this to happen and what we are going to do about it.”
Personally, I think it’s a positive thing here that Mark Sheppard, the straight-talking lead fund manager, and his team don’t beat around the bush.
They’re honestly stating the risk that the NAV discount might not narrow because the buying of UK equities will “inevitably” remain weak. This isn’t so certain, but it’s a possibility.
Would I invest in the shares?
To invest in this trust, one has to be VERY bullish on Nvidia and Microsoft. Any weakness in those and the trust is likely to badly underperform. There’s huge concentration risk, with 80% of assets in five shares.
Conversely, the trust is likely to outperform if that duo perform strongly, which is what happened last year. In the 12 months to 31 July, the NAV total return per share was 55.4%, smashing the Nasdaq index’s 23.9%.
As things stand, I reckon my portfolio has enough exposure to tech/AI stocks. However, this could be one to consider for investors looking for a discounted, high-conviction way to play the AI revolution.
