A few weeks ago, I wrote about how I had offloaded Princess Private Equity and part of my holding in Murray International to buy a basket of biotech trusts.
Last week, I went a step further and sold my remaining holding in Murray International.
The man behind Murray International
I still have a lot of time for its manager, Bruce Stout. He’s run this global equity income trust since 2004 but has been involved with it since the early 1990s.
Its shares have returned around 400% (about 10.5% a year) since Stout was appointed as lead manager and its dividends have trebled.
Net assets are now around £1.3 billion so it’s one of the larger trusts out there. The ongoing charge is 0.6% – not the lowest but fairly competitive – and it’s been heading in the right direction in recent years.
Stout navigated the global financial crisis and its immediate aftermath with great aplomb and over his tenure has gradually reduced the trust’s exposure to UK-based investments from around 40% to well under 10%.
A tough few years
But a low level of exposure to North America has been a big drag on the trust’s recent returns. Its latest factsheet showed about 35% in Asia Pacific, 23% in North America, and 20% in Latin America.
Stout has long banged the drum on how the Western world is overly indebted and that the economics and demographics of many developing countries look much more favourable. While I tend to agree, the companies of the Western world still seem to be ones doing the best.
Certainly, in recent years, it’s been fund managers that concentrate on picking the best stocks rather than pontificating on macro-economic concerns that have done the best.
Despite its large Asia Pacific weighting, Murray International has less than 3% in Chinese equities, and so it hasn’t particularly benefited from the strength of that country’s stock market this year.
How long Bruce Stout will remain running this trust is unclear. He’s in his early 60s but I suspect he wouldn’t want to bow out now after a relatively poor run of returns.
On the plus side, Murray International’s income only fell from £41m in the first half of 2019 to £36m in the first half of this year, so its holdings have so far proved to be fairly robust from an income point of view.
Its revenue reserves fell from £76m at the end of 2019 to £70m as of June 2020, suggesting it should be able to maintain or even gently increase its dividend for a little while yet.
The undesirables
I have to admit that Murray’s current list of holdings doesn’t inspire me that much.
Of the four UK stocks it holds, two are Vodafone and Shell, which have been paying out more in dividends than they’ve been earning in profits for a while now.
The other two are British American Tobacco and Standard Chartered, which have both been struggling share-price wise.
It’s not exactly an ethical quartet.
However, a bit like when I sold out of City of London Investment Trust last year, I knew this when I first bought in. Stout has been consistent with his investment approach – it’s my views that have changed.
Patient… up to a point
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Even including dividends, the shares of Murray International are basically flat since the start of 2017 and up just 80% over the last decade, a long way behind global market indices.
For a while, I was happy to keep holding as this trust provided some regional diversification to some of my racier holdings.
However, 2020 has tried my patience for the collection of more cautious global trusts I hold (RIT and Caledonia being the others) and I’ve decided some pruning is in order.
Having bought three new holdings in the biotech/healthcare sector, the number of holdings in my portfolio rose to 20. Selling out of one holding completely gives me a little more headspace.
Murray has been the one that gets the chop, thanks to the cumulation of smaller concerns I have, although I may trim back both RIT and Caledonia at some point as well.
RIT and Caledonia don’t have any requirement to deliver a high yield, so should be less restricted in what they can invest in. They also have slightly better long-term records.
It seems I’m not the only that’s become impatient with these trusts this year though.
Murray International has traded at a discount for most of this year, having often traded at a small premium. Ditto for RIT Capital Partners, while Caledonia has seen its discount go from 15%-ish to the low twenties.
Warning: my timing often stinks
If you ever wanted a golden sign that the value style of investing is going to come back into vogue, then this could be it.
My timing on stuff like this rarely covers me in glory. Murray International occasionally seems to have periods where it does very well relative to global markets and it may well do so again.
But once I have an idea settled in my mind, I tend to act fairly quickly rather than waiting for what might be a better entry or exit point. Sometimes they come along but often they don’t.
Spreading the proceeds
I’ve done what I often do when I have no single investment idea and spread the proceeds over a number of my existing holdings.
So I’ve added a little to my trio of UK small-caps: Henderson Smaller, BlackRock Smaller, and Acorn Income.
The discount on the former two has widened significantly in recent weeks to the low teens, which seems like an opportunity to me.
Acorn Income is one of the smaller trusts that has suffered from a widening bid-offer spread this year. It recently appointed a new broker to help combat this problem and it does seem to have a difference already.
I’ve also topped up the three healthcare/biotech trusts I bought recently: Worldwide Healthcare, BB Healthcare, and International Biotechnology Trust, which I was intending to do sometime this year anyway.
Finally, I also added to my three renewable energy/infrastructure trusts: HICL, Gresham House Energy Storage, and Bluefield Solar Income Fund.
Bluefield Solar has been suffering from weaker power prices this year and concerns that prices could fall a lot further in future.
But recent weeks have seen a bit of an uptick in prices, it’s bought some new assets (although they look a little expensive), and it is planning to diversify a little, so I’m happy with a little top-up.
Yesterday came the news that we could see a substantial rise in corporation tax rates announced later this year. Not a great surprise considering what has happened, but it could dent the net asset values of these trusts. Corporation tax rates are often mentioned as one of several factors in their sensitivity analysis alongside discount rates, power prices etc.
I plan to do my next full quarterly portfolio update in early October.
With the sale of Princess and Murray, my portfolio turnover is now 8% this year. While that’s high for me, it’s still on the low side for most folks.
Disclaimer
Please note that I may own some of the investments mentioned above -- you can see my current holdings on my portfolio page.
Nothing on this website should be regarded as a buy or sell recommendation as I'm just a random person writing a blog in his spare time and I am not authorised to give financial advice. Always do your own research and seek financial advice if necessary!
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Bruce Stout was one of the biggest attractions to Murray International when I first bought it a couple of years ago. I was particular taken by his take on the demise of the West and the rise of emerging markets. Also the large exposure to Latin America was something novel and seemed well thought out. I have been disappointed with the performance however, but I am continuing to hold for now. The dividend seems safe and it looks likely to continue growing. It also does offer something different from the other global trusts in my portfolio. Reading the annual reports reminds me of a saying a read somewhere along the lines of ‘it is easy for bears to sound clever, but bulls make money’
Well done for biting the bullet with this decision. I also hold MYI, RCP and CLDN. I jettisoned CLDN last year. This year in my annual review I think MYI could get the chop though I do keep reading Value is going to make a comeback and, like many, I find myself always concurring with Bruce’s dour assessment of the state of the world economy.
I topped up on RCP recently as it went out to a 10% discount as I do see this one as a very core holding.
Funny Ive been looking at Murray International as a bit different and safer option alongside Brunner. Although I have been a long term holder of Caledonia and RIT started from the regular investment days. I have a few less collectives than 20 and then a load of individual stocks with mixed fortunes thankfully all outweighed by my utility pick of Amazon. Im beginning to think how I can simplify things. Now what I really want is a Ballie Gifford fund of funds.
Thanks J and Branoc. Interesting that a number of us held MYI, RCP and CLDN.
I always really enjoy your always frank assessment of all things IT.
Many trusts seem to go in and out of favour. Depending on how long this pandemic lasts i am not sure emerging markets equities and debt (both owned by MYI) is where i would want to be.
I like to keep it simple so for my natural yield ISA portfolio i am going to aim for – HFEL, CTY, Bankers, Scottish American and HINT.
Decent mix of high yield, growth and geographical spread.
Regarding infrastructure and private equity i will leave that for my managed funds to navigate.
Keep up the informative good work.
Thanks Peter. There’s a lot to be said for not meddling too much! I suspect emerging markets will beat the US once again at some point, as they did in the 2000s. But timing such things is well above my paygrade.