Murray International 26 January 2022

Murray International (MYI) offers investors a Portfolio of global equities and bonds, with the objective of achieving long-term growth in dividends and capital while generating a compelling yield. The three-strong team of Bruce Stout, Martin Connaghan and Samantha Fitzpatrick invest in an entirely bottom-up manner, though they have long held a large overweight to emerging market equities and bonds. This is a reflection both of the team’s desire to identify companies with sufficiently attractive dividend profiles, and of the naturally higher growth rates of emerging market economies when compared to their developed peers. The team remain confident in the potential of Asian equity markets in the near term, especially due to the potential re-rating from the slightly delayed implementation of the COVID-19 vaccine.

The team have long made use of bonds as a source of both return and yield for the trust. The team’s allocation to bonds reflects their perceived relative attractiveness compared to equities, with MYI having an 11% allocation to fixed income, compared to the 102% allocation to equities (including the effects of gearing).

MYI has underperformed both global equities and its peer group over both a one-year and a five-year time horizon. MYI’s near-term underperformance reflects both the dominance of low-yielding growth stocks and the underperformance of Asian equities, to which MYI is overweight, as we describe in the Performance section.

MYI currently yields 4.8%, one of the highest yields in the peer group. The team highlight their belief in their companies’ ability to sustain their Dividend growth rate, allowing the trust to have largely covered its dividend for the last decade. MYI currently trades on a 7.5% Discount, wider than its long-term and peer group average, although it has in the past traded much closer to its NAV.

MYI offers investors the advantage of a naturally high-yielding strategy which has been sustained by strong underlying revenue generation. MYI continues to retain the same defining characteristics it has had in previous years: a high yield, coupled with a unique approach to global income investing. The team’s emerging market allocation, coupled with holdings in fixed income securities, offers investors a clear source of both stock and sector diversification, given the uniqueness of MYI’s position relative to that of its peers. MYI may be of particular attraction to more cautious investors who are looking to enhance the yield of their portfolio without having to utilise higher-risk strategies such as dedicated emerging market trusts.

We believe that MYI’s positioning means that it may be able to benefit from different tailwinds than its peers. As Asia continues to catch up to the West on vaccine roll-outs, if investors return to the region then MYI’s relative underperformance may begin to narrow given its large overweight to the region. Likewise, the managers’ willingness to hold fixed income securities also means that MYI can capitalise on different tailwinds to its peers. As global inflation and interest rates begin to rise, that may end up being a painful headwind to MYI’s bond holdings, given their negative relationship. Yet that may also open up new opportunities for the team to enhance MYI’s yield thanks to the higher yields on fixed income instruments. We also note that MYI’s current discount, which is wide by historical standards, may offer an attractive entry point as a result.