Murray International Trust: July 2020 update

• Bruce Stout thinks some of the best opportunities for growth and income can be found in Asia
• The trust’s current UK exposure is the lowest in its history
• Not investing much in North American or technology companies has hindered recent performance

How it fits in a portfolio

This investment trust aims to provide long-term growth in both capital and income by investing in companies from different corners of the globe, as well as some bonds. Compared with the global stock market average, there’s less invested in developed markets and more invested in Asia Pacific and Latin America. That means it could be a useful addition to a portfolio looking to increase exposure to Asia and higher-risk emerging markets, or for portfolios looking to diversify their income streams. Investors in closed-ended funds should be aware the trust can trade at a discount or premium to NAV.

Manager

Bruce Stout’s been involved with Murray International Trust since 1992 and became lead manager in 2004. His experience goes back further, having been an employee of Aberdeen Standard Investments, in its various guises, since the late eighties. When he took over the trust it was heavily invested in the UK, and he’s been instrumental in transforming it into the more globally diverse trust it is today.

He’s assisted by Martin Connaghan and Samantha Fitzpatrick, who are both also long-standing employees and have managed global portfolios for the last fifteen years. The trio are all senior members of Aberdeen Standard Investment’s global equity team, and have the support of a large pool of analysts from all over the world, whose research they can draw on.

Process

Stout and the team invest in companies from across the globe they think can grow both their earnings and their dividends. They prefer companies that are difficult to compete with, reinvest their profits to keep growing, are in growing industries, and have shareholder-friendly management with strong track records.

They don’t have a yield target for companies or the portfolio as a whole, as they think that can sometimes be bad for performance. Instead the managers focus on dividend growth, and think the best way to achieve that is by finding companies that are themselves growing.

They’ve found the most opportunities in the Asia Pacific (excluding Japan) region. Stout thinks lots of companies there are financially strong and are becoming more dividend-focused. The trust’s current investments in the UK, on the other hand, have never been lower as they’ve found fewer growth opportunities than in other parts of the world.

The managers also invest part of the trust in bonds, mainly from Asia and higher-risk emerging markets. They only buy ones trading at a discount, and often use them as an easily-accessible source of cash to buy shares. Stout took advantage of recent stock market volatility to do just that. He sold some bonds from Brazil and Indonesia that had held up well, reinvesting the proceeds in US companies Broadcom and AbbVie.

This increased the trust’s US investments to around 20% of the portfolio, which is the most invested in a single country in many years. US exposure is still far below the global stock market average though, whereas investments in Asia and higher-risk emerging markets are much higher. This makes the portfolio look quite different to its global stock market benchmark.

The managers can use gearing (borrowing to invest), which can boost gains but also increases losses so it’s a higher-risk approach. They can also use derivatives to help them invest, which if used increases risk too. Investors should refer to the latest annual reports and accounts and Key Investor Information for details of the risks and charging structure.

Culture

The trust is part of Aberdeen Standard Investments, which was created with the merger of Aberdeen Asset Management and Standard Life plc in 2017. Mergers have the potential to cause disruption, but we think this one benefited the trust by giving the managers access to a bigger pool of resources.

Considering environmental, social and governance matters (ESG) is an integral part of investing at the company. It has dedicated a large amount of resources towards ESG, so they can actively engage with companies and exercise their right to vote on ESG issues.

Cost

The trust’s current annual ongoing charge is 0.61%, which includes the 0.5% annual management charge. We think this is fair value for access to an experienced manager with a sensible, diversified approach. If held in a SIPP or ISA the HL platform fee of 0.45% per annum (capped at £200 for a SIPP and £45 for an ISA) also applies.

Performance

Since Stout took over the trust in June 2004 it’s performed well. He’s delivered returns of 420.7%*, compared with 360.7% for the FTSE All World index. These returns don’t indicate future performance. Due to the large differences in the trust’s geographical exposure compared with the broader global stock market, there could be times when performance will be very different to the benchmark, both positively and negatively.

In the 12 months to 31 December 2019 the trust’s net asset value (NAV) and share price rose 12.4% and 16.5% (with dividends reinvested), respectively, as the discount narrowed. While a pleasing result by most year’s standards, this was a fair way behind the benchmark’s 21.1% returns.

A 53.5p per share dividend was paid for the period – a 3.9% increase on the previous 12-months. The trust currently yields 5.2%. That’s much higher than the global stock market’s current 2.3% yield, although income is variable and isn’t guaranteed. Yields are not a reliable indicator of future income.

The trust has struggled more recently, dropping far further than the broader global stock market since the start of the year. Investing less in technology companies and North America than its benchmark held back performance, as they were among the best performing areas. Investing more in Asia and emerging markets also hindered returns as they did worse than the global average. Some of the individual holdings were also hit hard by March and April’s market volatility, such as the trust’s largest holding, Taiwan Semiconductor, which fell around 35% at one point. This is over a short period of time though, and remember past performance isn’t a guide to the future.

Murray International Trust performance under Bruce Stout

Past performance is not a guide to the future. Source: Lipper IM *to 30/06/2020

Past performance is not a guide to the future. Source: Lipper IM to 30/06/2020

More on Murray International Trust, including charges

Murray International Trust Key Investor Information