In this podcast we are joined by Bruce Stout and Martin Connaghan, managers of Murray International Trust. They give their thoughts on the most exciting areas of growth in the global economy today and discuss the key themes in markets for the next 12 months. They also provide an update on the Trust over the past six months.

Recorded on 27 October 2021

Podcast

Discrete performance (%)
30/09/21 30/09/20 30/09/19 30/09/18 30/09/17
Share Price 20.7 (16.6) 10.7 (7.5) 17.7
NAV 24.1 (12.6) 7.9 (1.2) 13.6
Reference Index 22.7 0.5 6.2 11.2 13.9

Total return; NAV to NAV, net income reinvested, GBP. Share price total return is on a mid-to-mid basis. Dividend calculations are to reinvest as at the ex-dividend date. NAV returns based on NAVs with debt valued at fair value. Source: Aberdeen Asset Managers Limited, Lipper and Morningstar.

 

Past performance is not a guide to future results.

Transcript

Welcome, everyone. And thank you for tuning in. I'm Cherry Reynard, with me today our Bruce Stout and Martin Connaghan of the Murray International Trust to give an update on performance and the outlook for the months ahead. Welcome both of you. Bruce, can we start with you and just give an overview of the trust performance over the past six months.

Over the last six months, when we actually look at the net asset value of the trust, it's been relatively stable is pretty much unchanged. That's despite the fact that the markets been up and down risk aversion has been on and off all the time. And but we have been relatively stable. What has been noticeable is that the Trust has gone from 5% Premium around about April, March to a 5% discount today. So that's affected the share price, although, as I said, the net asset value has been relatively stable.

And is there a highlight in terms of areas that have performed well, or areas that have performed badly?

Yeah, I mean, it's been, it's been quite an up and down period, we had a lot of strength in sort of miners and cyclical businesses, as people became more hopeful that the pandemic was easing. And then there's been quite a lot sell off in those areas when the Delta variant came along in the so July, August, September period. So sentiment really moving around all over the place. But as I see on a on a point to point basis, the net asset value has been relatively stable. Okay, thanks, Bruce.

Looking under the skin a bit, Martin, if we could so what's been the picture on kind of earnings and dividends for the companies in the portfolio? And also how does that compare to the wider market?

With regards to the dividends, first of all, in the trust and in the market, the story is one of recovery, and improvement, dividends have been coming back most strongly where there was most disruption last year, and that was in the UK and Europe. Dividends in the second quarter went up over 60% in both the UK and Europe year upon year and the second quarter and that really just been driven a huge amount of that growth being driven by the reinstatement of cancelled and delayed dividends from the prior year. In addition to some quite large special dividends coming from the miners, and other parts of the globe, you know, dividends have been solid, but we were left with less growth just as a result of there being less disruption now, the prior year so dividends went up 5% in the second quarter in North America and we're basically flat in Japan again just struggling by the resilience there from the prior year. So that's fed through into the trust and I guess in earnings that too has seen a recovery story I guess the main question mark that we see at the moment is where we really go from here I'm on the earnings front because you know, the market has been about more volatile and a bit weaker more recently. And the market quite rightly has some concerns around you know, where revenue growth and earnings go towards the end of the year into next year as these you know, supply chain constraints etc. seem to be you know, weighing on market sentiment for perhaps longer than was initially anticipated. So earnings and dividends improving in a certain way, perhaps a question mark over earnings from here.

Okay, great. And sticking with you, Martin, if we could have you made any notable changes to the funds positioning over the past six months?

Past six months, we have made some changes to the positioning but not as many as the prior year. We sold out of Auckland Airport in the early part of the year it had rebounded quite nicely but it also faces uncertainty with regards to travel, and its a business where today the dividend hasn't come back. So we did sell out of that stock. We also sold out of Japan tobacco earlier in the year, continuing the theme of reducing that tobacco exposure and trust. And we sold out of buyer there the German pharmaceutical and specialty chemical company. I just started concerns that roundup and the litigation surrounding the weed killer roundup was going to continue to weight on the stock and distract management. On the other side of those we initiated position and the Canadian midstream company Enbridge transports you Huge amounts of natural gas all over the continent of North America a fairly solid business model, very solid revenues and very attractive levels of dividend and attractive levels of growth and that dividend so Enbridge was one of the new businesses that we put in. And then just before the end of the year, we put in two new pharmaceutical holdings. We put in Bristol Myers in the United States, and Sanofi in France, just really attracted by the valuation of both companies. But again, both of them having an attractive level of yield and solid growth and dividend. So that would be a summary of the activity during the first six months for the trust.

Okay, thank you, Bruce, if we could turn back to you. Where do you see as the most kind of exciting areas of growth in the global economy today, you know, whether that's sectors or regions, how are you seeing it?

I think the so called developed world has already enjoyed quite a bit of a bounce in anticipation of this pandemic is, our pandemic problems are easing, certainly seen that in Europe, North America, and to some extent in the UK. But I guess we're more focused on Asia for next year, I think he just been delayed slightly because of the Delta wave. And because of a resurgence of cases, which of course, further isolation and lock downs. But that really just postponed it to next year. And we think next year, should be good for earnings and dividends in Asia and emerging markets next year, and the year beyond in terms of sectors, we're going to come on to the issue of inflation, I think shortly, but we have been really focusing more on real assets. Because we do believe that there are some developments on the inflation front, which may not be pleasant for some of the sectors in the areas that have done well over the last 10 years. So real assets for us are things like pipelines, property, industrials, and even into the minerals such as iron ore, lithium, oil and gas, and we'd also, you know, telecom networks in there as well, because a lot of investment has gone in those businesses over the last few years. And they're really beginning to benefit or will benefit from an uptick in demand, especially for data. So real assets have become increasingly a focus of the portfolio.

And you mentioned inflation there. I mean, is that likely to be kind of the key determinant of the direction of markets in the year ahead, or do you think, interest rates, the dollar, the virus, all these other things may come to the fore?

Yeah, I mean, all these things that you mentioned, are very important in terms of the direction of financial markets, but the thing that is quite interesting at the moment, is that a lot of policymakers and politicians are maintaining the view that the inflationary pressures that we're seeing at the moment are transitory, although there's no actual evidence for that. It's probably more wishful thinking. But we do have in reality, there's a significant increase in things like energy prices of oil and gas. And that's before the world has actually emerged from a pandemic, because there's still lots of areas that are struggling. So the reasons for those things are under investment over the last few years as supply disruptions, as Martin's already mentioned. But we also have a changing geopolitical climate where less globalisation more tariffs and more rigidity in the flow of goods and services, and these are all actually inflationary. The question is, if the retail price index stays above 4% or 5%, in the UK, for the next six months or so what starts getting factored in to wage negotiations? And I think that may be one of the biggest challenges for markets or certain sectors of the market anyway over the next year, or year and a half. And that is how it digests some rather unpleasant inflation numbers.

And how are you handling that in the portfolio? Is that a question of looking for companies that have pricing power, for example?

Well, again, companies that have pricing power is always advantages. And companies will tell you companies have got pricing power, but you're never really sure if they do or not until the event. But it goes back to the issue of real assets that we talked about earlier. Because companies that have real assets, tend to be in a relatively strong position in an inflationary environment. The other issue about inflation is what happens to very expensive growth stocks that have valuations or current valuations that are kind of based on the perpetuity of low interest rates and low inflation that we've seen for the last decade and should that change then, perhaps, we have to be very careful about some sectors of the market that look overpriced. So yeah, I mean we we look through businesses on an individual basis. But you know, when you get a general rise in inflation, it's difficult to avoid input costs or labour costs, if you can pass them through great, but you know, it will be a much, much tougher business environment probably in the next year or two years then than we've had in the previous five.

Okay, thanks. Uh, one final question for you, Bruce, which is about the gearing on the trust. So what level is that at today? And what does that say about your sort of relative optimism or pessimism?

I'm not really sure that is a barometer of optimism or pessimism in terms of the gearing and we use bonds to de-gear, the trust when equities are expensive, and when bonds are expensive relative to equities, we go back the other way. So it's more a function of what is the most attractive asset. And last year, I think, as you know, Martin and myself and Sam divested quite a lot of bonds during the difficult period, because we could get yield and dividend growth, uplift from reinvesting back into equities. So the trust went from 94% yield at the beginning of last year, and there's now 101% into equities who were more geared into equities, there's probably more a function of bonds looking less attractive than equities, rather than seeing equities are really attractive. But we're always looking for opportunities and some of the bonds that we owned had got very expensive, then that's why we divested them.

Okay, thank you. And then just finally over to Martin to talk a bit about the outlook for the next 12 months, you know, any key themes you see in markets and sort of running through the portfolio?

I guess given all the risks that we've already, you know, highlighted, I think the outlook is the is the trickiest part as always is I don't think anybody would really be overly comfortable giving a detailed outline with any degree of certainty. I mean, we are, we are comfortable that we and are hopeful that we can continue to, you know, to repair on the income side as it relates to the trust and that ultimately, the best way for us to, you know, try and negotiate the uncertainty as we go forward. As via the diversification in the trust. So, you know, there's been new companies that have came in this year, there was a lot of new companies out there last year and as we as we move forward, we will always continue to look for those opportunities, regardless of where the companies are listed. Because at the moment, you know, they're in the best place to be is very, very difficult to soar and our means diversification is the best way to manage that for shareholders.

Great. Okay, thank you both so much for those thoughts today. As always, there's more information about trust at www.murray-intl.co.uk. And thank you so much for tuning in.

This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for informational purposes only and should not be considered as an offer investment, recommendation or solicitation to deal in any of the investments or products mentioned herein and does not constitute investment research. The views in this podcast are those of the contributors at the time of publication, and do not necessarily reflect those of Aberdeen. The companies discussed in this podcast have been selected for illustrative purposes only, or to demonstrate our investment management style and not as an investment recommendation or indication of their future performance. The value of investments and the income from them can go down as well as up and investors may get back less than the amount invested. Past performance is not a guide to future returns, return projections or estimates and provide no guarantee of future results.