Murray International 08 October 2019
Disclosure – Non-substantive Research
This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. With this commentary, Kepler Partners LLP does not intend to influence your investment firm's behaviour.
Murray International aims to achieve a total return greater than its benchmark by investing predominantly in equities worldwide.
Aberdeen Standard Investments
Association of Investment Companies (AIC) Sector
Global Equity Income
12 Mo Yield
Dividend Distribution Frequency
Latest Market Capitalisation
Latest Net Gearing (Cum Fair)
Latest Ongoing Charge Ex Perf Fee
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Daily Closing Price
Managing over £1.7bn of assets, and with a history stretching back to 1907, Murray International (MYI) is one of the largest and most prominent investment trusts in the UK. With a global focus, MYI invests in both equities and fixed income assets, seeking to deliver total returns in excess of its benchmark with an above average dividend yield.
Whilst longer-term returns have been strong, returns in recent years have been more challenging with the trust lagging over the past five years, although the past 12 months have been more positive. Increasingly, relative performance has become more correlated to the relative fortunes of emerging market indices, with the trust consistently overweight to these regions.
Quality and valuation characteristics are key inputs into the stock analysis undertaken, and the latter consideration has led the manager, Bruce Stout, to hold a very underweight exposure to US equities for a number of years. With the US market a very strong performer relative to most global indices, this has been a headwind, but Bruce maintains his view that this market remains historically overvalued, buoyed by monetary policy as opposed to fundamental corporate performance.
Fixed income positions are held for income generation, and nearly wholly held in emerging market jurisdictions where the manager can generate sizeable yields. Presently MYI yields c. 4.4%, the second highest in the sector. The manager has been successful in increasing the dividend for many years, even during highly challenging times such as 2008-09.
Drawing on a global team of analysts, MYI constructs a relatively concentrated portfolio of around 50 equity positions, augmented by fixed income exposure. Sector exposure tends to be concentrated in areas such as consumer staples, with a stock-selection process which places importance on reliability of earnings and earnings growth. The manager ran technology funds in the 1990s and sees parallels to that period in the current mega-cap technology stocks, with investors seeking passive exposure to areas which have led the market over the past five years near the top of the cycle.
Having traded on an (often sizeable) premium for much of its recent history, Murray International has seen this narrow in recent years, partly as a result of more negative sentiment towards its preferred investment approach and partly as the board remains active in trying to manage premium or discounts that exhibit too great a degree of disparity to NAV. Despite a prolonged period in a more challenging market environment for its investment style, MYI remains at a slight premium to NAV and widely traded.
MYI has a clear strategy in place, with a top-down view of the global macroeconomic environment informing how the manager views valuations and potential for earnings growth. The significant overweight to emerging markets, and underweight to US markets, has been a headwind in recent years, but is consistent with the manager’s well-published views. Despite the often adverse economic and trading conditions experienced by emerging and indeed global markets, the trust has successfully increased its dividend every year since 2004 (and it has not declined in the past 25 years), which is testament to the robustness of the underlying businesses.
Clearly recent years have proven more challenging cumulatively, but the trust has shown it retains the ability to generate outperformance in conducive conditions. Emerging market outperformance and US underperformance will be amongst the key nearer term drivers of NAV returns, but the ability of the underlying companies to grow earnings and dividends is likely to remain tied primarily to the macroeconomic and demographic factors highlighted by the manager (as discussed in ‘Portfolio’). Should we see a sea-change in environment, with sustained emerging market leadership and weaker US market returns, MYI would likely revert to the outperformance which previously gained it such prominence.
|Consistent growth in dividend highlights reliability and resilience of underlying businesses
||If the market environment of the previous five years persists, MYI will likely continue to underperform
|Exposure to faster-growing consumer markets in a reasonably concentrated portfolio||Stock selection process and global mandate means unlikely to capture full upside if EMs outperform|
|Attractive headline level of yield|