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Bruce Stout 'buying quality more cheaply' in toughest market ever

Bruce Stout, manager of the Murray International investment trust, hasn't added any new companies to the trust this year, preferring to stick to his trusted names.

 
Bruce Stout 'buying quality more cheaply' in toughest market ever

Murray International investment trust manager Bruce Stout has been using sustained falls in the oil price to top up his holdings in oil companies in a process he calls 'buying quality more cheaply'.

Stout has not added a single new company to the £1.16 billion trust – which features in Citywire Selection – so far this year, in what he calls the most challenging markets he has faced, and instead has topped up existing positions in his favoured emerging market focused blue chips.

Along with adding to Singapore Telecom and Australian insurer QBE, Stout took advantage of the market falls in June to add to holdings in French oil firm Total, China's Petrochina and Italy's Eni, taking his weighting in the sector to 12% of his equity portfolio. He also holds UK rival Royal Dutch Shell (RDSb.L).

Stout said the whole sector had been 'punished' in June purely on fears over the falling oil price, with investors overlooking the strong fundamentals of many of the businesses.

Adding quality at a cheaper price

'We have been looking to add quality at a cheaper price. Oil companies are trading at about book value just because of falls in the oil price but they are on yields of about 6%,' Stout said. 

Stout has used recent new share issuance of £52 million, which was raised to help narrow the trust's premium, to top up existing positions in the portfolio.

The premium currently sits at around 6%, and Stout said that the £52 million of new shares issued in the first half of 2012 contributed to a total of £250 million issued to tackle the premium, which has been out as wide as 9%.

Stout's view that the indebted West will take years to extricate itself from record levels of debt has meant sticking with high-yielding quality blue chips, most of which are yielding far more than their counterparts on the bond side. The fixed income component of the fund is at its lowest level ever at 7.4%. Even at this weighting, Stout believes it still looks 'richly valued'.

'People perceive corporate and sovereign bonds as being safe but a five year bond in Roche will give you a yield of 0.7% compared to 4.5% for the equity. A lot of short-dated sovereign bonds have negative yields over two years so people prepared to pay for Austrian, French or German bonds seems totally senseless.'

Capital preservation mode

Stout is sticking with his high-yielding quality blue chips that he thinks will continue to benefit from emerging market growth, such as largest holding, British American Tobacco (BATS.L), as well as Unilever Indonesia, Philip Morris and Taiwan Mobile.

With the trust yielding around 3.8%, Stout remains in capital preservation mode as the indebted West continues to struggle for growth amid the massive and ongoing deleveraging programme.

'We remain very, very cautious. Most businesses have had recessionary conditions for the last three years and you cannot just readjust record deficits in two or three years. Remaining in capital preservation mode is critical and our portfolio is still seeing good dividend growth.'

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