Stability in an uncertain environment: Murray International

MYI’s diversified approach may offer stability in an uncertain environment…by Nicholas Todd 

Overview

Murray International (MYI) offers investors a benchmark-agnostic approach to delivering long-term capital growth alongside a high yield and a growing dividend. MYI has been managed by industry veteran Bruce Stout since 2004, who will retire in June 2024. However, Bruce has worked closely with Martin Connaghan and Samantha Fitzpatrick since 2001, and in June 2023, Martin and Samantha were made co-managers of the trust to help ensure a smooth transition (see Management).

As discussed in Portfolio, the investment process is expected to remain consistent. The managers look to maintain a well-diversified, benchmark-agnostic portfolio, limiting the exposures to any one geography or sector. The importance of generating an attractive yield has led to a lower allocation to typically growthier, lower yielding markets such as the US, when compared to standard global equity indices in favour of Europe and a meaningful allocation to the emerging markets and Asia. In addition, the valuation-sensitive approach has influenced the trust’s sector allocation which is typically geared to higher yielding sectors such as telecommunications, energy, and materials. An allocation to emerging markets fixed income has bolstered yield in the past, however, this has significantly reduced since the pandemic, reflecting the valuation opportunities and the strength of underlying holdings. The Dividend has returned to being fully covered, providing a yield of 4.6%

Strong Performance has tended to occur in value-driven environments such as 2022. However, during periods of growth dominance MYI has tended to lag broader equity markets with higher technology exposures. That said, the diversification has resulted in some downside protection. The manager’s caution is reflected in the historically low level of Gearing following the repayment of £60m tranche of debt in in May 2023.

MYI currently trades on a 5% Discount which is at the wider end of the trust’s long-term discount range and compares to a five-year average discount of 2%.

Analyst’s View

In our view, MYI is well positioned to offer a level of stability for investors during a period where markets are still struggling to find an equilibrium. Although Bruce is retiring in 2024, we believe it is unlikely there will be any change in the style of management. The highly diversified, benchmark-agnostic approach has provided some protection against drawdowns when compared to a broader global equity peer group and broader equity indexes. However, the distinctive value sensitive approach employed by the managers can leave the trust lagging in times of strong growth. With inflationary pressures significantly off their peaks and interest rates in the developed markets plateauing, this may mean a period of underperformance.

However, the underlying quality of the holdings has been reflected in the most recent dividend, which returned to being fully covered by underlying revenue following two years of being supplemented by the trust’s significant revenue reserves. This has ensured MYI’s impressive track record of 18 years of consecutive dividend growth has continued. Despite high interest rates currently on offer, we believe MYI still offers an attractive yield which can offer support to the total returns objective when capital growth is under pressure.

MYI’s discount has been volatile; however, there is a clear long-term range where the board actively issues and buys back shares when required. With the discount at 5.5% this is at the lower bound of the range and may offer a good long-term entry opportunity.

Bull

• Highly diversified, benchmark-agnostic portfolio relative to alternative strategies
• Discount wider than long-term average
• High yield versus peers and 18 consecutive years of dividend growth

Bear

• Retirement of longstanding manager
• May lag in growth-driven markets
• £30m tranche of debt repayable in 2024 which would be expensive to replace

See the full research on Murray International Trust here >

_{This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.}