Results out this week for Murray International (MYI) for the half year to 30.06.14. This is a trust which we have long admired; it was in our Income portfolio from its inception on 29.06.12 but, after a good performance, we sold it at the end of May 2013 at 1197p, replacing it with the more UK focused Edinburgh Investment Trust (EDIN). Originally bought at 983p, MYI was sold on a premium of 8.8%, which we felt might not last, (although in fact the premium had been considerably higher than that.) As you can see from the following chart the timing of our sale proved good but ever since we have been eyeing it up to see whether it offered enough value to warrant bringing it back in to the fold.
Two years of pain
Before looking at the trust in some detail, it is worth making a couple of points about the performance above; firstly, it is unfair to compare the Trust to the FTSE All Share as we have done, since (the clue is in the name), it has international exposure. This is a period which has seen Sterling strengthen against most major currencies and this has taken its toll on all international assets, for sterling investors. Also the chart shows only the capital return, whereas MYI has an above average dividend. The trust itself uses a benchmark of 40% FTSE World UK and 60% FTSE World ex UK. We calculate that for the 2 years from 30.06.12 it has, however, underperformed this composite benchmark by c. 14.5%.
Secondly, the fund manager, Bruce Stout, (who it has to be said has an excellent long term record with this trust) has strong views about the state of the world. To quote from the Trust’s factsheet at 30.06.14: ‘It is becoming increasingly clear, particularly to the political establishment in the United States, that the misguided experiment of Quantitative Easing has failed to re-invigorate growth and ease the debt burden as intended. Unfortunately frustrated policymakers look set to compound misjudgements if increasingly discussed rhetoric of direct government activism becomes the next perceived panacea for sovereign debt reduction. Capital preservation against such a difficult and complacent backdrop remains the prevailing investment objective.’
These views have led to a portfolio which to the extent it has owned equities in the developed world at all has concentrated on more defensive stocks, particularly the tobacco sector, but in the main the fund manager has sought value in the emerging economies of the Far East and Latin America. Over the past two years, up until recently at least, defensive sectors and emerging markets generally have underperformed . What is striking (and arguably admirable) about the portfolio is the extent to which the Trust has stuck to its guns, despite a difficult period; thus, with one exception, the top twenty stocks at 30.06.12, which then accounted for 52.2% of assets, were still in the portfolio at 30.06.14,at which point they made up 46.5%. Portfolio turnover is low and there is a strong conviction; attributes we like.
The top five equity holdings at 30.06.12 were: BAT (UK and Malaysia), Souza Cruz (Brazil), Unilever Indonesia, Philip Morris (USA) and Aeroportuario del Sureste (Mexico). Other than Souza Cruz, these were still significant holdings at 30.06.14, although the French company Casino had edged out Philip Morris from the top five. From the latest portfolio holdings at end of July, hot off the press at the time of writing, there seems to have been little change.
Current asset allocation
The portfolio breakdown at 30.06.14 is as follows:
|Murray International Trust PLC||£000s||%|
|Other net assets||6,540||0.5|
|Other long term liabilities||–||–|
|Equity shareholders’ funds||1,282,885||100|
The analysis of the portfolio at 30.06.14 was as follows:
|Murray International Trust PLC||%|
|Asia Pacific ex Japan||20.4|
|Latin America & Emerging Markets||19.7|
|Europe ex UK||19.2|
|Latin America & Emerging Markets||6.5|
|Asia Pacific ex Japan||2.8|
|Cash and other assets||0|
|Murray International Trust PLC|
|Price 13.08.14 (p)||1081|
|Est NAV 13.08.13 (p)||996.2|
|Total Assets (£m)||1475.4%|
We slightly baulk at paying an 8.5% premium for this trust; are there alternatives? We looked at using a combination of BlackRock Latin American (BRLA), JP Morgan Emerging Markets Income (JEMI) and JP Morgan European Income (JETI) to try and create the same sort of exposure. An equal combination of these three trusts has an exposure of 50% to Latin America and Emerging Markets; 33% to Europe ex UK and 17% to Asia Pacific. It would yield 4.1% and be available on a 10% discount, although the individual spreads would eat into this. But, in truth, there is less stock crossover than one might think with MYI and the latter has a good record in stockpicking and asset allocation (except in the past two years).
Aside from the premium, the other problem we have with MYI is that if the fund manager is right in his view of the world, we may not want to be owning equities at all. Having said that, it may just be that defensive stocks and emerging markets in particular are about to have a good run relative to developed market equities and MYI should benefit from that. On balance we wouldn’t be buyers of the stock at the moment (for pure emerging market exposure we would use JMG or JEMI as above) but would be happy holders of the stock as part of a wider portfolio.