Skip to the content

Why Murray International is still worth buying on an 8.4 per cent premium

02 December 2014

Murray International’s long-term record and cautious positioning mean investors should consider the trust despite its high premium, according to Winterflood.

By Gary Jackson,

News Editor, FE Trustnet

Despite the fact that the Murray International investment trust is trading on a high premium even after a bout of underperformance, analysts at Winterflood say there are a number of reasons why it could still prove attractive to some investors – especially those with a defensive tilt.

The £1.3bn trust, which has been managed by Bruce Stout since June 2004 and resides in the IT Global Equity Income sector, has a solid long-term track record but performance has faltered over recent years as the manager became concerned by a lack of value in the market.

FE Analytics shows the trust has made a total return of 326.09 per cent over Stout’s time on the fund, significantly outperforming the 165.04 per cent gain of its average peer and the 146.75 per cent rise in its FTSE All Share/FTSE World ex UK composite benchmark.

Performance of trust vs sector and benchmark over manager tenure

 

Source: FE Analytics

However, it has underperformed both the sector and the benchmark on a three-year view, returning 33.31 per cent. The peer group average return is 45.65 per cent while the benchmark has risen 48.83 per cent.

Its muted performance in 2013 was the main reason for this. It made just 4.14 per cent last year while its average peer was up 23.16 per cent, meaning it was the worst performing trust in its sector.

Despite lacklustre returns in recent years, the trust is trading on an estimated premium of 8.40 per cent, according to FE Analytics. The premium has been high as 8.94 per cent and as low as 0.31 per cent during the past 12 months, AIC figures show.

Simon Elliott, research analyst at Winterflood, says this short-term period of weaker performance and high premium should not necessarily put investors off the fund, particularly if they are looking for a manager who is placing capital preservation firmly in mind.

“Despite its performance over the last few years we believe that Murray International rightly remains one of the most highly regarded investment trusts in the sector,” Elliott said.

“Although we are wary of recommending funds at significant premiums, we believe Bruce Stout (pictured) will generate outperformance and dividend growth for its shareholders over the long term.”

Stout has lowered the portfolio’s exposure to equities across the course of 2014, arguing that they are no longer attractive following several years of quantitative easing (QE) fuelled expansion.

The manager believes companies will find it more difficult to grow their revenues moving forward, according to Winterflood, owing to a lack of inflationary pressure and an environment where global economic growth is expected to stutter.

One consequence of this is that UK dividend growth is likely to be only slightly positive for 2014, despite many people going into the year expecting growth of between 10 and 15 per cent.

Murray International has been buying emerging market debt this year as it pulls back from equities, with purchases being made in Indonesian, South African and Brazilian sovereign debt. The trust now has 17 fixed income positions, compared with 50 equity holdings.

Elliott points out that the trust’s exposure to US equities remains low at 14.8 per cent, which reflects the high valuations and low market yield being seen here. Limited exposure to the US was one of the reasons for the portfolio’s underperformance in 2013, after the country’s stock market rose significantly.

Stout sees more value in emerging markets, which underperformed the US in 2013. He has 20 per cent of the portfolio in Asia Pacific ex Japan and 19.5 per cent in Latin America and other emerging markets, with an additional 2 per cent in Africa.

Among the tailwinds for emerging market equities are the prospect of interest rate cuts from several central banks in these economies and the knock-on benefits for some from the recent plunge in the price of oil, the manager says.

This positioning means the trust hasn’t soared over 2014 to date, although it has beaten its average peer. FE Analytics shows the fund is ahead by 5.31 per cent, compared with a sector average of 2.34 per cent and a benchmark gain of 8.13 per cent.

Performance of trust vs sector and benchmark in 2014



Source: FE Analytics


But given his view on the markets, Stout is not looking to shoot the lights out with Winterflood noting that the manager would rather protect his investors at the moment than chase extra returns. 

Elliott concluded: “A meeting with Bruce Stout is an exercise in realism. His contention that there are many things amiss in the world – QE, youth unemployment, financial short termism, etc – is difficult to disagree with.”

“Furthermore his emphasis on preserving shareholders’ capital at a time of uncertainty is compelling, particularly if one accepts his arguments about the paucity of fundamentals.” 

“His view is that it would be a good achievement for Murray International to get through the year without losing money, especially given its underweight exposure to the US market.” 

Murray International has ongoing charges of 1.08 per cent, including its performance fee, and is currently 15 per cent geared. It yields 4.36 per cent.

ALT_TAG

Editor's Picks

Loading...

Videos from BNY Mellon Investment Management

Loading...

Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.