Hard-headed Bruce Stout is standing by his bearish market outlook in spite of two years of poor returns.
Aberdeen’s global equity star, manager of the £1.4bn Murray International trust, is unrepentant on the calls that have seen him fail to capitalise on the market rallies of the past few years.
He has insisted his focus on preserving capital and growing the investment trust’s dividend is shared by the investors in the trust.
And because of the lack of tailwinds for equities, he said a cautious outlook was still warranted, in spite of global markets hitting all-time highs.
Mr Stout’s trust has underperformed its global equity income peer group by 16.1 percentage points since the beginning of June 2013.
The trust has suffered due to scarce holdings in the top-performing markets of the US and Japan and a focus on Asian and emerging markets, which have struggled in the past two years.
But Mr Stout claimed in an environment of slow global growth, developed-world deflation, high indebtedness and low company earnings growth, investors should expect similar results from the trust for the foreseeable future.
He went as far as to warn the trust’s relative performance may continue to be “painful”.
Mr Stout said from his conversations with the trust’s shareholders, they were not concerned about missing out on the recent rally in the US market, a major contributor to the vehicle’s underperformance. That was because the country was “not a fertile hunting ground for dividends”.
In spite of the trust’s underperformance – it has delivered a share-price total return of 23.9 per cent in the past three years, compared to its benchmark index rise of 43.7 per cent – its shares still trade at a 5 per cent premium to its net asset value.
This suggests investors are sanguine about the trust’s performance and accept Mr Stout’s bearish view on markets.
Mr Stout said he had no idea what markets would do from here on, but said he was comfortable with the companies he owned and said he would continue to take the yields on offer and “wait for a pick up” in the business outlook.
He insisted stocks in the US and UK were “very expensive” and “do not yield anything any more” and that as an income-focused investor he has had to look to Asia and emerging markets.
He said all the data points to UK company payouts falling in 2015.
But the past few years have been challenging for emerging markets income stocks, too.
Research from Investment Adviser last month found that the majority of funds with an income focus had underperformed the MSCI Emerging Market index and their emerging markets fund peers since mid-2013.
This was a period of volatile markets in which defensive, income-paying companies would usually thrive.
Mr Stout said he could find many well-managed, cash-rich companies in the region and said the case for picking up income in Asia and emerging markets was “as strong as it has ever been”.
But he admitted that with the current market sentiment, dominated by the strength of the dollar, his trust’s performance “over a two-year period in relative terms might be painful”.
