Insights from the AGM

The Mid Wynd International Investment Trust plc primarily focuses on investing in businesses we refer to as “compounders”. These are what we consider to be high-quality businesses that can sustain high levels of financial productivity. By reinvesting their earnings they have the potential to grow their capital base and generate attractive rates of return that compound over time. We expect this ultimately to feed through to share prices.

The companies we invest in have historically generated returns on capital above the averages in their respective sectors. For example, based on historical data, Taiwan Semiconductor has generated a cash flow return on investment of around 15%, approximately double the global average.

In our view, these quality companies have advantages that can help protect their profits from competitive pressures. We allocate to companies with a range of advantages, which gives us exposure across different sectors.

We aim to buy these companies at what we consider to be a fair price. One of the important questions we ask is how long the market expects these outstanding returns to last. We invest in businesses where we believe the market is underestimating how long they can retain an edge and therefore undervaluing them.

We have a very large team of analysts at Lazard helping us unearth these businesses around the world. We intend to own them for a long time, to let that compounding take effect. This is why we have a portfolio turnover that is typically just 20% a year.

Bump in the Road

This investment approach has historically delivered positive results, but we have encountered quite strong difficulties over the past 12 to 18 months. There have been two major drivers. The segment of the market we define as ‘quality' has underperformed the market significantly over this period. That is a rare occurrence.

More recently, there has also been a strong bifurcation between stocks that the market perceives as “AI winners” – the immediate and long-term beneficiaries from the AI revolution – and companies perceived to be “AI losers”. We have been underweight the former and overweight companies that the market perceives to be AI losers.

We disagree very strongly with this perception. We think many companies currently being seen as AI losers may demonstrate through their earnings power – their ability to generate profits – that AI developments are not materially harming their businesses.

Exhibit 1 below shows what’s happened to quality over the past 12 months or so.

As at 16 October 2025
1: For the period 30 June 2024-30 June 2025. Data in GBP. Source: FactSet, Lazard,
2,3: Data in USD. Source: Bloomberg, Lazard.
The performance quoted represents past performance. Past performance is not a reliable indicator of future results.

The left-hand chart shows the share price performance of quality relative to growth and value stocks. The third chart shows the global index of quality companies against the main index. That severe downward slope since the middle of 2024 is a very rare occurrence for quality

The middle chart is perhaps the most important. It shows these share price falls have not come because company earnings have tumbled. Generally, the companies we own have maintained their relatively high earnings power. What has driven the share price down is a shift in the mood towards stocks of this kind. This is reflected in their price/earnings (P/E) multiples.

Between June 2024 and June 2025 the MSCI ACWI global equity index rose by 7.2%. Mid Wynd declined by -5.9%. Over this period, we observed a savage de-rating of many “quality” businesses we consider to be classic compounders. The scale of this decline has been the most pronounced we can remember in over a decade.

This de-rating effect alone cost us 9% in performance during that period. Not holding so-called AI winners cost us over 2% in performance. We lost another 0.5% from holding stocks the market believes are AI losers.

What This Means for Investors

To our minds, the sharp fall in the price-to-earnings (P/E) ratios — the ratio of a company’s share price to its earnings per share — for many of the stocks in our portfolio means that the Mid Wynd International Investment Trust is attractively valued relative to historical levels.

Barney Wilson and I and the whole team are working extremely hard and testing very heavily our conviction to make sure that those companies that have suffered significantly are still what we believed them to be when we bought them. We think their competitive moats remain intact and, rather than being diminished by AI, could actually be significantly enhanced.

Companies like the data businesses we own sell critical information essential to the daily workflow of their clients. Errors and failures in that data can be extremely costly for customers. Many of them are developing AI applications to enhance the value of that data and the way clients access it. We have spoken to management at companies like Wolters Kluwer, and it is clear that they will be able to charge for these enhancements. This is far from proven in the case of many of the purported AI winners that the market is currently hyping.

Locked-in Value

The MSCI ACWI is at its 95th percentile for price/earnings over the past 10 years. In other words, it is trading at nearly an all-time high. Conversely, roughly half of the Mid Wynd portfolio is in the bottom half of its 10-year range of price/earnings, and around one in six companies are cheaper than they have been in 10 years in terms of P/E.

Our view is that the de-rating has gone so far that all we need is for it to stop. We do not need a huge re-rating of these companies to start reeling in some of the recent underperformance.

I would love to be able to give you the precise date when that is going to happen. But we really believe the stocks will start outperforming again if these companies continue to compound their earnings at low- to mid-double-digit rates, as most are doing.

The market appears to have developed a very strong negative view on many of these stocks. If investors begin to recognise that these companies are successfully generating value from AI developments, their valuations could re-rate and increase towards historical levels. Should this occur, it could lead to even better returns for the Mid Wynd strategy.

Let us finish with another chart. This shows the long-term returns from investing in quality, growth and value. You can see that over the very long term, quality is by far and away the most consistent and best source of alpha that we can find.

As of 30 June 2025.
Source: FactSet
All data in USD. Indices are Net Total Return. The performance quoted represents past performance. Past performance is not a reliable indicator of future results. The indices mentioned are unmanaged and have no fees. One cannot invest directly in an index. 

We have just gone through a very, very tough period. Those periods have happened before. But we see no reason to believe that over the long term this positive trend should not be resumed. That could – we believe – make the Trust a very attractive buy in today’s market.

Past performance is not a reliable indicator of future returns. Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change.