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Murray International back on form, but partly due to currency

Murray International had a good 2016 partly due to Sterling weakness
March 16, 2017

Murray International Trust (MYI) made a share price total return of 50 per cent over 2016 and a 40.3 per cent net asset value (NAV) total return, against 25.8 per cent for its benchmark - 40 per cent FTSE World UK Index and 60 per cent FTSE World ex UK Index. However, a substantial part of this was driven by currency movements: during 2016, sterling depreciated 15 per cent following the UK's vote to leave the European Union in June, and around 90 per cent of the trust's revenues are from overseas companies which pay dividends in local currencies.

However, the trust's chairman, Kevin Carter, says: "After a difficult performance period in the prior three years, the continuing focus on geographical diversification and investment in companies with strong business franchises and shareholder-friendly management was rewarded in the period."

And Iain Scouller, managing director, investment funds research at Stifel, adds that the NAV has benefited "from good stock selection, emerging market exposure and sterling weakness. We like the manager's defensive income investment style together with his wariness over growing government debt and extraordinary monetary policy."

Over 2015, Murray International's NAV total return fell 7.8 per cent and its share price total return fell 15 per cent.

"Performance was disappointing from 2013-15 due to its low US exposure and high weighting in Asia and Latin America/emerging markets," says Charles Cade, head of investment companies research at Numis Securities. "However, there was a marked turnaround in performance in 2016, which has continued into 2017. The trust has an attractive yield of 4 per cent, which is now fully covered, and we believe that it is an attractive investment, particularly while trading at a discount to NAV, currently 0.8 per cent. Its manager also has an excellent long-term record."

The trust often trades at a premium to NAV, including during the past few months of 2016.

Holdings which did well include the trust's emerging market bonds that returned 49.3 per cent in sterling terms due to a combination of yield compression and currency uplift. "More than justifying the relative underperformance "cost" of establishing such exposure over the 2014-15 period, improving domestic fundamentals remain supportive of this asset exposure going forward," says Bruce Stout, manager of Murray International.

The trust has about 10 per cent of its assets in emerging markets bonds.

Asian equities - the trust's largest sector allocation - returned 32 per cent over 2016. Particularly significant contributors to performance included Unilever Indonesia (UNVR:JKT), which made 1.34 per cent. Exposure to Taiwan and Thailand also helped, with Taiwan Semiconductor returning 2.4 per cent - the top stock contributor - while recent addition Siam Commercial Bank (SCB:SET) also did well.

In 2016, Mr Stout increased Asian exposure by £77.3m and companies added included Auckland Airport (AIA:NZC) in New Zealand and Tesco Lotus Retail (TLGF:SET) in Thailand. "Both are relatively small growth companies well positioned to prosper from increasing consumer spending across the Asiatic region," says Mr Stout. "Both emphasise the strategy to invest in different companies in different businesses operating in different countries with different positive growth dynamics. In a global context, numerous such opportunities exist in Asia, hence the portfolio's significant exposure there."

UK exposure, however, was maintained around historical lows as Mr Stout is "unimpressed by extended valuations against such an opaque economic and political backdrop," while "lack of UK exposure contributed most to relative returns. Superior stock selection in a market that trailed all other regional indices proved very beneficial. Weir Group (WEIR), BHP Billiton (BLT) and Royal Dutch Shell (RDSA) enhanced both absolute and relative performance, with only Vodafone (VOD) disappointing against expectation. A new position in leading satellite company Inmarsat (ISAT) was initiated, with a long-term view towards its involvement in the provision of internet for global airlines."

Europe exposure was reduced over 2016 from 18 per cent to 10 per cent due to concerns including monetary easing policies and non-performing loans. "Such concerns prompted the outright sales of large portfolio holdings in Nordea Bank (NDA SEK) in Sweden and Zurich (ZURN:VTX) in Switzerland," says Mr Stout. "Manipulative mischief in corporate bond markets and increasingly unreliable guidance over credit quality suggest an increasingly opaque outlook for European financials."

The trust's remaining European holdings are in defensive areas such as pharmaceuticals and consumer staples, with an overweight towards Switzerland.

Murray International proposes increasing its dividend by 2.2 per cent from the 46.5p paid in respect of 2015 to 47.5p, subject to shareholder approval of a final dividend of 16p. Its board intends to maintain a progressive dividend policy.

Murray International's manager, Aberdeen Asset Management (ADN), has recently proposed merging with Standard Life (SL.). Investment trusts are independent companies in their own right so Murray International would not form part of a merger, but investment trusts can be affected if the company to which they outsource their management make changes. However, Murray International's board says: "[We have] sought and obtained assurances that the existing investment management and client servicing team from Aberdeen will remain in place and focused on the [trust's] affairs, and we will be vigilant to ensure this remains the case."

At the start of 2016, Murray International's management fee was revised and its performance fee removed. Previously the base fee was 0.5 per cent of net assets plus borrowings, but it is now 0.575 per cent of net assets up to £1.2bn, 0.5 per cent between £1.2bn and £1.4bn, and 0.425 per cent above £1.4bn. The trust has net assets of about £1.56bn.

The ongoing charge for 2016 was 0.68 per cent down from 0.75 per cent for 2015.

MURRAY INTERNATIONAL (MYI)
PRICE1191pGEARING113%
AIC SECTOR Global Equity IncomeNAV1200p
FUND TYPEInvestment trustPRICE DISCOUNT TO NAV0.80%
MARKET CAP£1.5bnYIELD4.00%
No OF HOLDINGS72*ONGOING CHARGE0.68%*
SET UP DATE1907MORE DETAILSwww.murray-intl.co.uk

Source: Winterflood as at 15 March 2017, *Aberdeen.

Performance

1 year share price return (%)3 year cumulative share price return (%)5 year cumulative share price return (%)
Murray International433747
FTSE World ex UK index3868105
FTSE All Share index232655
Global equity income trust average354581

Source: Winterflood as at 15 March 2017

TOP TEN HOLDINGS as at 31 January 2017 (%)

Taiwan Semiconductor4.5
British American Tobacco4.4
ASUR4.2
Philip Morris3.6
Unilever Indonesia3.5
Taiwan Mobile3.4
Sociedad Quimica Y Minera De Chile2.7
Daito2.7
TELUS2.6
SingTel2.5

Equity allocation (%)

Asia Pacific ex Japan24.4
Latin America & Emerging Markets16.7
North America14.9
United Kingdom12.3
Europe ex UK10.2
Japan3.7
Africa1

Fixed income allocation (%)

Latin America & Emerging Markets9.9
Asia Pacific ex Japan4.8
Africa1.2
United Kingdom0.4
Cash0.5