I would say that until last year, manager, Bruce Stout had done an excellent job since taking over the reins for over a decade. The trust has become one of the most consistent global income trusts under his stewardship. Prior to 2013, it had outperformed its benchmark in each of the previous 11 consecutive years. According to figures from the Association of Investment Companies, £1,000 invested over the past 10 years would have produced a total return of £3,180. With one or two exceptions, the dividend has grown or been held in each of the past 40 years. Dividend growth over the past 5 years is 6.3% p.a.
Murray International (MYI) has today reported results for the full year to 31 December 2014 (link via Investegate).
For a second consecutive year, the trust has not managed to outperform its benchmark. The share price total return for the year was just 1.7% compared to 7.5% for the benchmark - comprising 40% of the FTSE World UK Index and 60% of the FTSE World ex-UK Index.
Some of the reasons for the underperformance are an underweight position in USA which returned 20% last year, a reduction in the premium to NAV, currency exchange headwinds and an increase in weighting to fixed income securities.
Whilst NAV per share has fallen over the past year, the management charges to Aberdeen have increased 6.2% to £7.2m (2013 £6.8m). Total charges represent 0.76% of net assets including transaction costs.
Despite this years underperformance, Stout sees no reason to change his defensive approach "Certain maxims exist globally irrespective of country, creed or culture. Oil and water don't mix; foundations built on sand don't last; pouring petrol on fire won't extinguish flames. Applying such logical thought and common sense to the financial world, it would be reasonable to assume borrowing more money won't reduce debt. Self-evident, perhaps, but seemingly beyond comprehension for central bank policymakers. Complicit with relentlessly layering more debt on top of existing debt in a futile attempt to solve the chronic global debt crisis, their actions remain beyond contempt. Unfortunately such practice continued to dominate recent global economic policy"… and…
"Alas debt dependency, built up over decades, has disfigured private and public sector balance sheets beyond any point of recognition. Fearing widespread austerity and fragile democracy, policy makers pump even more credit into the financial arteries of an already desperately indebted system. In the United States alone, the national debt is on pace to double during the eight years of the current administration. In other words, from the most recent two-term presidency the US government will accumulate as much debt as it did under all the other presidents in US history. For those advocates of easy money and blinkered short-termism, none of this matters. Unfortunately in the real world it most certainly does. Crippling debt-financing commitments condemn numerous global economies to a future of lower growth, persistent unemployment, lower wages, lower living standards and few opportunities".
He concluded:
"Companies operating in such environments can expect intense competition, constant pressure on margins and capital constraints on innovation. Cost control will reign supreme. For those more fortunate to have global presence, the focus on higher growth, higher profitability markets become paramount. To find these, companies must embrace regions with abundant savings, countries not constrained by irresponsible credit cultures and consumers benefitting from rising real incomes and increasing confidence.
Whether in Asia, Africa or South America the challenge remains the same: identify solid growth businesses with strong balance sheets and proven management teams willing to return cash to shareholders, then invest for the long term. Possessing exactly the type of flexible investment mandate to pursue such global opportunities, Murray International will continue to emphasise truly global diversification in pursuit of its capital and income objectives".
Dividend
On the dividend front, they are proposing a final payment of 15.0p making a total for the full year of 45p - an increase of 4.65% on the previous year (43.0p). The revenue for the year however was only 40.8p (2013 43.8p) so the full year dividend has not been covered by income and the management have dipped into reserves to cover the increase in payout to the tune of £5.3m. Hopefully this is a one-off but something to monitor for next year's results.
Despite recent underperformance, MYI has been one of the cornerstones of my income portfolio for several years and I am happy to continue holding for the diversified income and I am hopeful it can manage to get back on track before too much longer.
It is frustrating to see MYI not outperforming its benchmark for last 2 years but reason given by Bruce looks like in future, his analogy might come true as US economy is showing recovery due to quantitative easing by US Fed and sudden drop of oil below 50 USD. Better bets will be always a economies which got a significant savings and emerging markets looks like good long term bets even though, in short term, you might look stupid as USD taking toll of Emerging markets currencies. Hope they do AGM in Glasgow this year and will get chance to attend in person.
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