The year so far has proved challenging for investors and the sea of investment trusts has not been spared a shake-up.
Traditionally strong players like Scottish Mortgage have been suffering, presenting investors with the conundrum of whether they should buy the dip or back out.
Investors can tackle the current discomfort in markets in a variety of different ways, whether it be by taking a cautious approach, trying to ride out the wave of volatility altogether, or by taking advantage of price falls and buying at the lows.
So far, Murray International has emerged as one of the winners in the reassessment, but it has not been smooth sailing.
Looking at its 10, five and three-year performance, the £1.5bn trust had been anchored in the bottom quartile against its Global Equity Income sector. The three-year performance line below shows prolonged periods of underperformance against the reference sector and the benchmark.
Trust’s three-year performance against sector and benchmark
Source: FE Analytics
Ewan Lovett-Turner, head of investment companies research at Numis, blamed the disappointing performance on the little exposure to US tech stocks, while head of research at Chelsea Financial Services Juliet Schooling Latter also noted the trust’s greater weight in Asia and emerging markets than some of its peers.
Additionally, the trust also invests “a reasonable amount” in bonds, which would have been a lag during times of strongly rising equity markets.
In a recent interview with Trustnet, when asked about the trust’s choppy performance, manager Bruce Stout criticised the use of relative performance indicators.
“What are the key performance indicators for Murray International? In the past 20 years they haven’t changed: grow the dividend above RPI, have an above-average dividend yield covered by income, and grow the net asset value over the rate of inflation over the long term. Relative performance is destroying our industry,” he said.
“There is no point comparing a trust like ours, which can own bonds and invest in any market in the world, against others that are buying the hot stocks and paying dividends out of capital.”
Stout’s investment philosophy has indeed always been to look for more sustainable, long-term growth opportunities where valuations had yet to reflect widespread popular recognition, which resulted in a rather defensive portfolio where he feels he will be able to retain both earnings and dividends, without paying over the odds.
Schooling Latter: “He’s never one to follow fashionable stocks or pay extravagant prices (and there are the ones that have done well). By his own admission he is of a thriftier disposition.”
This penalised the trust while the market was focused on growth, but in the past year the tide has turned and the company has leapt to the top of the ranking over 12 months, as well as the six, three and one-month results. The chart below clearly shows the turning point in performance.
Trust’s one-year performance against sector and benchmark
Source: FE Analytics
On the back of these results, Stout confirmed in the latest trust factsheet that the current strategy will continue to be maintained.
He wrote: “The portfolio proved relatively resilient under such circumstances, the emphasis on diversification and real assets protecting capital during some extremely volatile trading days.
“With safe havens in short supply, it was encouraging to witness strength in energy, telecoms, insurance, and industrial holdings, plus the focus on quality and yield, holding firm as ‘popular’ sectors such as internet, media, software and new economy services succumbed to intense selling pressure on future growth concerns.”
But how much longer will the trust benefit from the current market conjuncture and should you consider staying the course or abandoning? For fans of the trust, is it time to buy and settle in for the long-run returns, or has that ship sailed?
The trust is currently trading at a -3.1% discount to net asset value (NAV) – a small discount, as it has traded lower in the past, as Schooling Latter noted, but it has also traded significantly higher.
“Certainly, the manager’s style means that returns have been very strong in some years and weaker in others, but he has delivered in the long run. In the past six to 12 months, the positioning of the trust and the style have really come to the fore, and it has outperformed the market and peer group quite considerably,” she said.
“The companies he holds should be better able to weather market volatility and higher inflationary environments.”
She continued to praise the manager for having always been “very clear about the way he invests” and so for her it was “at least a good long-term holding, if not a buy”.
Lovett-Turner reiterated his faith in the manager too, as he was convinced that the trust will continue to be “well-placed for providing defensive exposure in the current uncertain outlook”.
Both analysts provided other options, should investors not feel encouraged by Murray’s current discount.
For defensively minded investors, Lovett-Turner recommends RIT Capital Partners or Personal Assets, while Schooling Latter opted for JP Global Growth & Income or Invesco Select Global Equity Income for those requiring regular dividends, while in the open-ended space she suggested Guinness Global Equity Income and TM Redwheel Global Equity Income.