Murray International Trust: May 2023 Update

• Bruce Stout is an investment trust industry veteran and has been involved with this trust since 1992 and lead manager since 2004
• The trust invests in both bonds and equities
• A well-resourced team with analyst coverage in all corners of the market

How it fits in a portfolio

Murray International Trust aims to grow income and capital over the long term by investing in company shares from around the globe, as well as some bonds. The managers invest more in higher-risk emerging markets compared to the benchmark, so the trust could provide useful diversification to an investment portfolio investing in more traditional income hunting grounds such as the UK. Investors in closed-ended funds should be aware the trust can trade at a discount or premium to Net Asset Value (NAV).

Manager

Bruce Stout is an industry veteran and has been lead manager since 2004, but his involvement with the trust started in 1992. Previously he worked as an investment manager covering emerging markets at Murray Johnstone, which was acquired by Aberdeen in 2000 (Aberdeen merged with Standard Life in 2017 and has since rebranded as ‘abrdn’). Stout has played a pivotal role in transforming this once UK-centric trust into the globally diversified trust it is today.

The manager is supported by longstanding colleagues Samantha Fitzpatrick and Martin Connaghan. Both have plenty of industry experience and have been involved in managing global equity portfolios for the last 15 years. The trio have plenty of resources at their disposal including a large pool of analysts with eyes in all corners of the market.

Process

Stout and his team invest in high-quality, financially robust companies that they believe have the potential to grow earnings and dividends over the long term. There is an emphasis on companies with resilient business models, a unique set of advantages over the competition and experienced management teams.

To identify opportunities, they use research from across the firm’s regional teams. This helps the managers whittle down a universe of around 13,000 companies to a final portfolio of between 40-60 names. The managers don’t have a yield target for the companies they invest in. Instead, they blend companies with higher yields, and those with lower yields but more potential for income growth.

Historically, investors seeking income focused on the UK, but Stout and his team have found more opportunities overseas over the years and as of the end of March just 3.5% of the trust was invested in UK shares. European shares are the largest allocation, accounting for 25.5% of the trust. The managers think companies here tend to be less constrained by debt, leaving them in a better position to pay dividends, while also reinvesting in the business for future growth. There’s also a sizeable allocation to Latin America and other emerging markets. The managers believe valuations in this part of the world remain attractive.

The managers also invest part of the trust in bonds. At the end of March 2023 they accounted for 6.6% and are mainly from Asian and emerging markets. They only buy bonds they believe are available at a discount to their true worth, and often use them as an easily-accessible source of cash to buy shares. For example, they reduced investments in emerging markets bonds last year to increase exposure to European equities.

The managers believe higher inflation is supportive of companies who possess pricing power as well as companies owning real assets who are exposed to the global economic cycle. As a result, they’ve recently invested in ideas such as Dutch technology company, BE Semiconductor. North American based pharmaceutical company Merck and Australian petroleum company, Woodside Energy.

The managers can use gearing (borrowing to invest), which can boost gains but also increases losses so it’s a higher-risk approach. At the end of March gearing stood at around 10%. They can also use derivatives to help them invest, which if used, increases risk too. The investment trust structure gives them the flexibility to also invest in higher-risk unlisted companies, but this is not currently used.

Culture

The trust is managed by abrdn, which was created with the merger of Aberdeen Asset Management and Standard Life plc in 2017. Mergers have the potential to cause disruption, though this one provided the managers with access to a bigger pool of resources.

Stout took over as sole manager of this trust in 2004 but has been part of the global equities team for many years and has demonstrated dedication to this trust and its long-term investment strategy. He’s worked with co-managers Fitzpatrick and Connaghan for over 20 years – they work collegiately and welcome the support of the group’s analysts based all over the world.

ESG integration

abrdn is a firm well known for its commitment to ESG (Environmental, Social and Governance issues). Responsible investing has been part of the business since it set up its Corporate Governance team in 1992 and launched its first ethical fund in 1994. ESG and stewardship factors are also included in every stock research note and each firm receives an ESG score, based on its ESG credentials and its ability to manage ESG risks. All managers have access to a central ESG team, as well as specialist on-desk ESG analysts.

This trust’s Board engages actively with the manager on the assessment and integration of ESG factors. While the trust integrates ESG analysis, it does not have any exclusions, which means it can invest in any sector.

Cost

The trust’s net ongoing annual charge is 0.87%. Investors should refer to the latest annual reports and accounts, and Key Information Document for details of the risks and charging structure. If held in a SIPP or ISA the HL platform charge of 0.45% (capped at £200 p.a. for a SIPP and £45 for an ISA) per annum also applies. The HL platform charge doesn’t apply if the trust is held in a Fund and Share Account.

Investment trusts trade like shares, both a buy and sell instruction will be subject to the HL share dealing charges.

Performance

Long-term performance under Bruce Stout has been strong. Since June 2004 the trust’s delivered returns of 666.82%* in share price terms compared with 499.53% for the FTSE All-World Index, as always past performance is not a guide to the future.

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. We’ve seen this occur since Stout has managed the trust.

Until 2012, the trust performed significantly better than the global stock market and benefited from its exposure to Asian and emerging markets. However, this has proven a headwind over the past decade, as emerging markets haven’t performed as well as some developed markets. The US in particular has done exceptionally well over this time, but most global income funds don’t have as much invested in the US as growth-focused funds, because US companies don’t tend to pay as much in dividends.

Over the trust’s latest financial year, 1 January 2022 to 31 December 2022, it’s performed better than the global market. The trust’s share price rose 20.68% compared to -7.30% for the FTSE All-World Index and -10.47% of the AIC Global Equity Income peer group. Investments in Latin America and the UK were positive. As well as investments in basic materials, energy and health care have also helped whereas, investments in technology and utilities performed poorly.

The key to this trust is its focus on income. It aims to grow its dividend ahead of the rate of inflation – something it has achieved in 15 of the 18 years Stout has managed the trust. The trust has also seen 18 years of consecutive dividend increases and currently yields 4.19%. Income is not guaranteed and yields aren’t a reliable indicator of future income. The level of income paid will change over time.

At the time of writing the trust currently trades at a 1.88% premium to NAV.

Past performance is not a guide to the future. Source: *Lipper IM to 30/04/2023.

Find out more about Murray International including charges

Murray International Key Investor Information

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