Best in Class: Murray International Trust

“Notice that the stiffest tree is most easily cracked, while the bamboo or willow survives by bending with the wind.”

This quote from martial arts guru Bruce Lee has a strong resonance in today’s markets given geopolitical and economic uncertainty.

Make no mistake, 2019 has been the year where flexibility has been integral to investment success.

Therefore, investing in a vehicle with such flexibility makes sense for almost any core holding.

This week’s best in class is precisely that.

The Murray International Trust plc is an international portfolio of both equities and some bonds. It can invest anywhere in the world and in any sector, with a focus on maintaining an above-average yield for investors.

The trust was first launched in 1907 and performance is measured against a composite benchmark of 40 per cent FTSE World UK and 60 per cent FTSE World ex-UK indices, reflecting its wide remit.

It has been managed by another Bruce - Bruce Stout - since 2004.

He is a senior manager on the global equities team at Aberdeen Standard Investments (ASI), having joined in 1987. He has held a number of roles within ASI, including as an emerging markets fund manager.

At the heart of the trust’s process is well-disciplined stock research. Mr Stout, in effect, has two mandates: to protect and grow his investors’ money over the long term, and to provide above-average income.

The global strength of ASI is a major boon for the trust, with Mr Stout able to leverage off six specialist fund management teams – UK, Europe, Asia Pacific ex-Japan, North America, Japan and emerging markets.

He prefers simple businesses that have a strong ability to produce surplus cash and a resilient business model.

Mr Stout is also prepared to invest anywhere in the world he sees value. 

Murray International’s investment process gives him a buy list of around 900 stocks from which to choose.

Mr Stout then typically builds a watchlist of around 300 companies globally, where comparative analysis is undertaken.

The final step is a series of risk checks on the portfolio. His investment horizon when selecting stocks is at least five years.

The trust can also invest in fixed income securities, with the process of selecting and monitoring both sovereign and corporate bonds following exactly the same structure and methodology as equities.

The portfolio currently has 78 holdings. At the time of investment, the trust is allowed a maximum of 15 per cent in a single holding.

The UK’s dividend culture – compared with other regions globally – has traditionally seen the trust have a strong exposure to the home nations – however, this exposure has fallen markedly in the past decade (it is now below 10 per cent) as other regions improve their dividend-paying capabilities.

Mr Stout currently sees value in emerging markets and Latin America, which combined account for around 55 per cent of the portfolio.

Mr Stout believes the risks of a widespread economic slowdown are clearly rising, adding that “policy impotency and prospective profit shortfalls are likely to dominate the investment landscape between now and the end of the calendar year”.

He expects risk aversion among investors to dominate until this subsides. As a result, the trust remains focused on quality, under-leveraged companies where expectations tend to be lower than the broader markets.

During his tenure, Bruce has returned 514.5 per cent, compared with 335.2 per cent for the IT Global Equity Income sector. The trust currently offers a 4.3 per cent yield.

The trust tends to have a large number of long-term investors and the board does not wish to see a big fluctuation in the share price discount or premium.

It has typically traded at a premium in the past five years (currently 3.9 per cent). Total gearing of up to 30 per cent of NAV is permitted in normal market conditions (currently 12.7 per cent).

This trust is ideal for investors who have a long-term investment horizon and are looking for income and growth from global markets.

The focus on defensive businesses where the manager feels he will be able to retain both earnings and dividends, without paying over the odds, is ideal in most environments, particularly this one.

Darius McDermott is managing director at FundCalibre