Anyone interested in buying into Murray International should hold fire, according to Winterflood Investment Trusts, which said the trust is unlikely to maintain its high premium unless it arrests its recent underperformance.
Winterflood research analyst Emma Bird noted the high price-to-net asset value (NAV) reflects Murray International’s status as a firm favourite among retail investors since Bruce Stout took charge in June 2004.
It has made 455.09 per cent since then compared with 302.56 per cent from its FTSE World ex UK benchmark and 289.64 per cent from its IT Global Equity Income sector. However, its underlying holdings have struggled this year and its NAV is down 6.77 per cent, significantly more than its sector and benchmark.
Performance of trust vs sector and index over manager tenure
Source: FE Analytics
“The fund's premium has increased from 1 per cent at the start of the year to its current level of 5 per cent, as the decline in the share price has not kept pace with that of the NAV,” said Bird.
“We therefore do not view Murray International as attractively valued at present and believe that the premium may come under pressure if the underperformance that it has experienced so far this year continues.”
However, the analyst noted the trust’s strong long-term performance record and its yield of 4.2 per cent, which is the highest in its sector.
“The dividend has been increased every year since 2004, while the fund’s revenue reserves are currently equivalent to 84 per cent of the latest full-year dividend,” she added.
The group said that the fund’s consistently high exposure to equities listed in Asian and emerging markets (43 per cent as at the end of March) has been one of the key determinants of relative performance over recent years and means its return profile should continue to look different from that of its benchmark and peer group in the future.
Analysts at brokerage Numis Securities said this overweight – along with a low exposure to the US – was also responsible for the trust’s disappointing performance from 2013 to 2015.
“However, there was a marked turnaround in performance in 2016 and 2017 was a solid year,” the analysts added.
While sector exposure is a function of stock selection, a key trend in recent years has been the decline in the portfolio's consumer staples weighting, which fell from 23 per cent at the end of 2012 to 16 per cent at the end of 2017.
“In general, the manager does not expect strong dividend growth from the sector over the next five years, with the position in Nestlé exited last year due to the company's low yield and low dividend growth,” noted Bird.
“The allocation to consumer staples has primarily been recycled into emerging market debt, with the weighting to fixed income increasing from 6 per cent to 16 per cent over the period.”
Stout continues to hold Unilever Indonesia, however, which is one of a number of stocks he has held for more than a decade. Mexican airport operator Grupo Asur is another long-term holding and the second largest position in his portfolio.
“Through its presence in popular tourist destinations such as Cancun and Cozumel, the company benefits from the continuing rise in visitors to Mexico,” noted Stout (pictured). 
“Strongly cash generative, this business is well positioned to experience stronger growth as the global leisure industry continues to expand. Although we’ve held these companies in the portfolio for more than 10 years, we continue to do so in the belief that there’s still significant growth opportunities ahead.
“Murray International’s closed-ended structure helps us to take such a long-term view without any disruptive influences from external events such as short-term market volatility or fluctuating capital flows.”
Stout is famous for his ultra-bearish stance and is especially pessimistic at the moment. He has frequently expressed concern about the impact of monetary tightening in the developed world and warned that despite the current optimistic outlook, economic predictions are notorious for being wrong.
“Within the minds of increasingly discredited central bankers, theoretical justification has been the constant companion of perfunctory policy and imprudent practice for the past decade,” he said. “The implicit danger of continuing such a fallacy has never been so acute.”
“The reality is inescapable. No comparisons from economic history or chapters in economic text books exist that might remotely clarify, demonstrate nor describe the consequences of ‘normalising’ interest rates in a chronically, debt dependent world.
“Withdrawing monetary stimulus, shrinking sovereign balance sheets, maintaining confidence and re-establishing positive real savings rates whilst simultaneously trying to avoid recession and control inevitable credit quality problems is essentially what is proposed.”
Stout said the likelihood of succeeding with this balancing act is virtually zero and that great scepticism is warranted against such a backdrop.
As a result, he said he will maintain his focus on strong company balance sheets and realistic profit expectations, predominately in companies exposed to countries around the world with sustainable domestic growth dynamics.
According to the latest data from the Association of Investment Companies, the trust is 12 per cent geared and has ongoing charges of 0.64 per cent.