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Top 100 funds update: Murray International Trust

The manager of Murray International Trust has issued a stark warning to investors
March 5, 2013

Bruce Stout, manager of Murray International Trust (MYI), has issued a thought provoking and chilling antidote to the wholesale bullishness that has abounded in recent weeks. "Such naivety is beyond contempt," he warned.

In Murray International's annual report, he warns that "significant sums of money will be lost" in a global fixed income hangover that is "fast approaching".

"Perhaps the toughest investment strategy to implement going forward is how to preserve capital in a world of rising bond yields. That is the challenge for this year and beyond," he says. "Towards this end, gross assets will remain predominately exposed to equities, with continued emphasis on high-quality companies. Balance sheet strength, to fund internal growth and reward shareholders with increasing dividends, remains extremely important for companies seeking to protect themselves from prevailing macro-economic hostilities."

Murray International's shares traded at a premium to net asset value for the whole of 2012. We tipped the trust at 890p on a 4.49 per cent premium on 8 November 2011. Back then we said: "Few funds can boast better performance than this global income and growth trust - so much so that it's worth paying more than net asset value (NAV)."

The trust now trades at 1,156p and a premium of 5.3 per cent. That's a 29 per cent increase. So is it time to take profits on this member of the IC Top 100 funds?

Alan Brierly of Canaccord Genuity says: "Since Bruce Stout assumed responsibility in July 2004, Murray International is ranked No 1 of 169 open and closed-end global funds and superior returns have been generated regardless of underlying market conditions. A key driver has been a prophetic reading of the macro-economic backdrop and accordingly the manager's latest commentary is worthy of note.

"Murray International is deservedly regarded by many as a cornerstone investment and we believe it has undoubted strategic value. That said, investors need to be aware of the underlying risk profile and that this is not an absolute return fund. Having delivered a price total return of 48 per cent in less than 17 months, for the tactical investor there may be more attractive buying opportunities in the months ahead."

On the other hand, you are invested with a manager who is a cut above the rest, investing defensively, and has a track record of growing dividends ahead of inflation. The trust currently yields 3.5 per cent, a significant premium to both gilts and deposit rates. You should also note that MYI operates a discount and premium control policy, periodically issuing shares at a premium where demand exceeds supply.

Unless you disagree with the manager's strong views, this is one to keep.

Bruce Stout’s warning in full:

"To conventional wisdom it seems irrelevant that the United States and the UK possess the worst debt-related fundamentals ever in their history. To conventional wisdom these countries are perceived as the safest of safe havens, so never have their bond prices been so high and their bond yields so low. Yet never have they printed so much money with such blatant disregard for its integrity nor possessed such hideously over-indebted fundamentals.

"What happens when such conventional wisdom of being perceived as 'the best' wakes up to the reality of actually being among 'the worst'? There is no precedent within fixed income history to assess the likely damage, but significant sums of money will be lost.

"Quite simply, sovereign bonds in the developed world appear ludicrously expensive relative to crippling negative fundamentals, yet no one seems to care. A lethal cocktail of unparalleled levels of global debt and unparalleled global money-printing, shaken and stirred by numerous financial indicators at multi-century highs/lows, suggests a global fixed income hangover is fast approaching."

Murray International NAV total return vs benchmark of 40% FTSE World UK and 60% FTSE World ex UK

Year% outperformance
H2 20045%
20056.2%
20064.7%
20075%
200810.7%
20095.2%
20108.4%
20114.9%
20122.7%

Source: Thomson Financial Datastream

Top 10 holdings (as at 31 January 2013)

HoldingCountry% of portfolio
Sousa CruzBrazil 4.6
British American TobaccoUK & Malaysia4.6
ASURMexico 4.5
Kimberley-Clark de MexicoMexico 3.2
Unilever IndonesiaIndonesia 3.2
Taiwan MobileTaiwan 3.1
Philip MorrisUS3
Taiwan SemiconductorTaiwan 3
PetroChinaChina 2.7
TelusCanada 2.7
Standard CharteredUK 2.7

Portfolio analysis (as at 31 January 2013)

Equities%
Asia Pacific ex Japan26.7
Latin America & Emerging Markets21
Europe ex UK19.2
United Kingdom 13.4
North America 11.2
Japan 4.1
Fixed Income%
North America 2.2
United Kingdom 1.2
Europe ex UK1

Source: Murray International Trust