While Murray International has an income bias, both of the trusts offer exposure to global equity markets, have strong long-term track records and are run by highly experienced and respected fund managers.James Anderson (pictured), who has been running money since the 1980s, took over Scottish Mortgage in April 2000 while Bruce Stout, who has close to 30 years’ experience in the industry, began managing Murray International in June 2004.
Though both closed-ended funds offer exposure to global equities, the two managers have tended to have very different views on the market over the years and therefore their performance has differed quite substantially.
Our data shows both portfolios have comfortably outperformed their respective IT sectors and benchmarks, but Anderson’s Scottish Mortgage Trust has the slightly better longer-term track record.
According to FE Analytics, Murray International has returned 316.39 per cent since Stout took charge, while Scottish Mortgage has outperformed by more than 10 percentage points over that time.
Performance of trusts vs index since June 2004
Source: FE Analytics
Anderson has also outperformed over one, three and five years. However, that only tells part of the story as Innes Urquhart, analyst at Winterflood, explains.
“Clearly, they are very different portfolios,” Urquhart said.
“Murray International focuses on quality companies and has tended to have a bias towards emerging market and Asian stocks which has helped it in the past, but has weighed on performance over recent years.”
“Scottish Mortgage is much more growth orientated and we would describe it as a high beta portfolio.”
Urquhart says that means that Scottish Mortgage has outperformed in rising markets, while Stout’s fund has tended to lag.
Our data shows Anderson massively outperformed in the buoyant markets of 2009, 2010, 2012 and 2013; delivering an annualised return of close to 40 per cent over the four years.
However, when markets have fallen, the trust has tended to tumble. A good example is during the crash year of 2008. According to FE Analytics, the FTSE All World lost 20 per cent that year while Scottish Mortgage lost 44 per cent.
Murray International, on the other hand, only fell 8 per cent. It was similar situation in 2011 when the eurozone crisis threatened to derail the global economy.
Scottish Mortgage lost 15.15 per cent that year, but Stout managed to grind out a 1.4 per cent return.
Source: FE Analytics
It means that over a rolling seven-year period, which incorporates both of those falling markets, Murray International has generated a greater return.
The two portfolios are also set up quite differently at the moment.
Like most Aberdeen-run portfolios, Murray International is littered with high quality, cash generative companies with strong balance sheets.
The manager currently holds more than 40 per cent in large-cap global emerging markets stocks, listed across Asia Pacific ex Japan, Latin America and Africa.
Stout holds 46 per cent across the US, UK and continental Europe, though the majority of those companies are large-cap multinationals such as British American Tobacco, Philip Morris and Roche.
Stout also holds a small proportion of his portfolio in fixed income assets, which is almost entirely emerging market debt.
Due to its exposure to income generating stocks and bonds, the Murray International has an attractive yield of 4.15 per cent.
In his most recent note to investors, Stout explained why he was maintaining a relatively defensive portfolio.
“It is becoming increasingly clear, particularly to the political establishment in the United States, that the misguided experiment of quantitative easing has failed to re-invigorate growth and ease the debt burden as intended,” Stout (pictured) said.“Unfortunately frustrated policymakers look set to compound misjudgements if increasingly discussed rhetoric of direct government activism becomes the next perceived panacea for sovereign debt reduction.”
He added: “Capital preservation against such a difficult and complacent backdrop remains the prevailing investment objective.”
Anderson, on the other hand, runs a far more risk-on portfolio.
Numis Securities’ Ewan-Lovett-Turner says that while James Anderson has a high weighting to emerging markets and Asian stocks – currently close to 30 per cent – he will hold very different companies than Stout.
Anderson’s approach is to look for high-growth areas of the market and therefore has a high weighting to technology stocks.
Performance of trusts vs index in 2014
Source: FE Analytics
While this had driven returns over recent years, the trust was overly exposed to high-multiple growth stocks during this year’s rotation and has therefore struggled in 2014.
Stout’s trust, on the other hand, has flourished in the difficult conditions.
The experts’ view
Both Urquhart and Lovett-Turner rate Scottish Mortgage and Murray International highly.
However, they both agree that due to their differences, it all comes down to what an investor wants from their global trust as one offers capital protection and an income bias while the other is far more growth-orientated.
One major difference between the portfolios, however, is their current discounts.
Lovett-Turner says that while Murray International looks less attractive on a 6 per cent premium than Scottish Mortgage on a 1.3 per cent discount, it doesn’t necessarily mean it is worse value in the current environment.
“Murray is certainly more attractive than it has been in the past,” he said.
“We are always aware of trusts on huge premiums as the risk is normally always to the downside, but the trust’s current premium is by no-means as excessive as it has been over recent years.”
According to data from the AIC, Murray International has a traded on an 11 per cent premium to NAV at points over the last 12 months.
Lovett-Turner says as there is a growing scepticism in the market, that premium could hold for some time to come. However, he warns that Scottish Mortgage’s discount could be at risk.
“It is trading at the narrower end of its range,” he said.
“If you look back over the last five years, it has traded on a double-digit discount, so you couldn’t say it is cheap anymore. If there were to be a short-term movement in markets, the worry is that investors would be hit by both a widening discount and a falling NAV.”
Urquhart agrees that Scottish Mortgage is no longer cheap.
However, though he says that the trust’s board doesn’t have to protect that discount, he says they have been known to actively buy-back shares to defend current investors.
Scottish Mortgage has gearing of 14 per cent and has ongoing charges of 0.5 per cent.
Murray International, on the other hand, has gearing of 15 per cent and its ongoing charges are 0.67 per cent, although that doesn’t include its performance fee.
