What are your thoughts on MGG/MGF and MGFO?

I would like to seek your thoughts on MGG/MGF and MGFO.

Feb 2020: Magellan Global Trust (MGG) was trading at around $2. Since inception (2017) to 30 June 2020, its return was 11.39% p.a. and NAV $1.834.
In Dec 2020, there was a “Scheme of Arrangement” which resulted in change of MGG to MGF (Closed Class).

Magellan then offered a 2 for 1 options which traded in early Mar 2021 at 9 cents, today (23Apr2021) at 4 cents. The option expires 01Mar2024.
“The MGF Option gives the option holder the right, but not the obligation, to acquire one (1) Closed Class Unit in the Magellan Global Fund at an exercise price equal to 92.5% of the Estimated NAV per Closed Class Unit at the time of exercise.”

“To exercise an MGF Options and acquire one (1) Closed Class Unit in the Magellan Global Fund, the option holder is required to pay the exercise price. The exercise price is equal to 92.5% of the Estimated NAV per Closed Class Unit…”

The return on investment with initial MGG to the new MGF (with options, MGFO) is much lower than in early 2020.

1. Other than the pandemic, what other factors have caused the MGF to trade significantly lower return on investment?
2. Are investors holding off/awaiting performance of MGF and MGFO?
3. Is MGF essentially a Trust Fund that may be viewed as similar to an LIC?

What are your thoughts on the future performance of MGF?

Thank you.

A: The underlying cause for the discount to NTA of MGF (11.5% as of 23 April) is investment performance (lack off), and overhang caused by the potential exercise of the options (MGFO) at 92.5% of NTA.

When close-ended structures such as listed investment companies or a listed trusts such as MGF underperform, it is hard to attract new investors. If you have an overhang of sellers, often the price will slip to a discount.

I wouldn’t give up on Magellan – Hamish Douglas and his team have too impressive a record. I would continue to back them.

If you hold open class units (MGOC), an obvious trade at some stage will be to sell the open class units (MGOC) on the ASX at a price very close to NTA and buy an equivalent value of closed class units (MGF). Same underlying investments, 10% cheaper! This trade should stop the NTA discount on MGF blowing way out.

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