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Murray International on first discount in five years

IC Top 100 Fund update: The global equity income trust has seen the value of its shares plummet after disappointing interim results
August 20, 2015

IC Top 100 fund Murray International Trust (MYI) has fallen to a discount for the first time in five years after releasing disappointing interim results. The continued strength of sterling has taken chunks out of the once stellar trust's share price and its failure to maximise Japanese gains proved damaging.

In the six months to 30 June 2015, the global equity income investment trust's net asset value and share price both fell against the benchmark. Net asset value (NAV) declined by 2.6 per cent and share price total returns fell by 4.1 per cent in the six months to 30 June 2015, while the trust's benchmark (40 per cent World UK and 60 per cent FTSE World ex UK) returned 2 per cent.

Murray's share price crashed following the update on 17 August, reaching a 52-week low of 835p, down from 861p the previous morning. Shares have plummeted from a 10-year high during 2013, a banner year for equities, when the price reached 1,238p in May. In July 2013 shares were trading at a 10.5 per cent premium to NAV, but have now slipped to a 2.3 per cent discount. The last time the trust's shares traded at a discount was December 2009.

The trust blames the continued strength of sterling for the majority of its recent losses. With close to 90 per cent of assets invested internationally, the pound's rise to a seven-year high against a currency benchmark of leading trading partners has resulted in tough times for portfolio returns.

Manager Bruce Stout - well known for his bearish stance on the economy - has also been gloomy about the unpredictable nature of the current market and the potential to find sustainable, dividend-paying stocks. In the latest results, chairman Kevin Carter said: "Delivering progressive profitability and dividend growth against a backdrop of intense competition, unpredictable demand and downward pressure on selling prices will be difficult to achieve."

Mr Stout has turned to Latin America as an alternative source of dividend income in recent years. However in the latest financial report Mr Carter said overweight exposure to Asia and Latin America "proved negative as both regional indices declined". The trust has also been hurt by its exposure to emerging markets, which have fallen out of favour with investors in recent years. The trust has a 17.9 per cent exposure to Latin America and emerging markets. At the same time, a lack of exposure to Japan, the best performing market in sterling terms over the period, accounted for almost a quarter of benchmark underperformance.

Mr Stout said: “Liquidity-fuelled rising stock markets, a consequence of quantitative easing, is the major reason behind Murray International not beating its benchmark. The degree of share price appreciation is not a true reflection of distorted underlying economic fundamentals nor the operating environment which remains extremely challenging for many global companies. Given this and the problems facing the global economy I continue to believe that caution is warranted and Murray International’s positioning reflects that with a broad spread of companies from around the world.”

Analysts say that the trust's weighting to emerging markets explains its recent difficulties and argue that its high dividend yield means investors should think twice before turning away. Innes Urquhart, analyst at Winterflood, says: "Murray International's underperformance over the first six months of this year is undoubtedly disappointing, although it should not come as a major surprise given the portfolio's weighting to emerging markets and the difficulties that they have faced over recent years.

"The trust's historical dividend yield stands out as the highest in its peer group, albeit helped by the portfolio's fixed-income exposure. Despite its performance over the past few years, we believe that Murray International rightly remains one of the most highly regarded investment trusts in the sector.

"If emerging markets remain out of favour it is likely that the fund's relative performance will continue to struggle, although we believe that Bruce Stout will generate outperformance and dividend growth for its shareholders over the long term."

Alan Brierley, director of investment companies at Canaccord Genuity, also thinks it is too early to dismiss the manager. He says: "We retain our confidence in the manager and have a great deal of sympathy with his views.

"We like the focus on capital preservation, and would highlight that the dividend yield is now 5.3 per cent while the revenue account and reserves are strong. We don't know when, but we strongly believe that at some point the market will one day again come to value these characteristics." He adds that the fund has "obvious value for the contrarian investor".

 

Performance of trust and AIC sector (cumulative and calendar total return %)

1m3m6m1yr3yr5yr10yr
Murray International Trust -7.8-16.9-15.6-17.9-5.222.2147.9
AIC Global equity income sector-1.3-21.35.339.860.9101.6
2015201420132012201120102009
Murray International Trust -13.71.74.1191.326.535.9
AIC Global equity income sector2.92.423.216-5.522.830.5

Source: FE Trustnet, as at 18 August 2015