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Murray International cuts fees after another bleak year
Global income investment trust ditches performance fee and revamps annual charge after third successive year of underperformance.
Underperforming global income investment trust Murray International (MYI ) has cut its fees after another bleak year.
The fund, which sits at the bottom of the Global Equity Income sector over one year, has ditched its performance fee and revamped its annual management charge.
The performance fee, last claimed in 2012, had entitled the trust's managers, Aberdeen Asset Management, to 5% of the first 2% of outperformance versus the trust's benchmark, a composite of 40% of the FTSE World UK index and 60% of the FTSE World ex-UK index. The fund group would have received 10% of any outperformance above that, capped at 0.8% of the trust's assets.
However, after three successive years of underperformance versus the benchmark, the performance fee has been among the least of investors' worries.
It has now been ditched, alongside a revamp of the trust's annual charges that will at first provide only a small reduction for shareholders but could produce bigger savings should the trust grow in size.
The trust had previously levied a 0.5% charge on net assets, including borrowings, which are relatively high compared to rivals, with gearing at 17% of net assets.
The new charge will apply to net assets only, excluding borrowings, and employ a tiered structure. Assets up to £1.2 billion will be charged at 0.575%, falling to 0.5% for assets between £1.2 billion and £1.4 billion and 0.425% for any assets above that. Net assets currently stand at £1.1 billion.
'At present levels of gearing and net assets this is a small fee reduction but the reduction becomes greater once net assets exceed £1.2 billion, and greater still above £1.4 billion,' said chairman Kevin Carter.
Crucial to reaching that size will be a revival of the trust's fortunes. Last year, even accounting for dividends, the shares fell 15.2%, while its benchmark rose 2.6%.
'For the third consecutive year, the company's greater geographical diversification and focus on above average yield proved detrimental to relative total performance, even though revenue generation continued to be robust,' said Carter alongside the trust's full-year results.
'In recent annual statements, both I and the manager have emphasised a firm focus on capital preservation in the construction of the portfolio, and it is therefore a particular frustration that this has not been achieved.'
'Narrow' market hurts
As in previous years, manager Bruce Stout's (pictured) preference for emerging markets over the likes of the US and Japan hurt the trust. Stout is 'underweight' - holding less than the market - in both the US and Japanese stock markets, which were among the best performers of 2015.
'In aggregate, the overall portfolio objective to preserve capital proved untenable over the timeframe,' said Stout. 'Diversification of assets, currency exposure, sector and stocks with a value and higher yield bias fell short of delivering desired results against an increasingly narrow and expensive market backdrop.'
But Stout's problems were not confined to this bias towards emerging markets. His value approach has also led him to some of the beaten-up areas of the market, such as oil groups and miners, that fell further in 2015.
In the North American portion of the portfolio, a holding in Canadian stock Potash Corporation of Saskatchewan (POT.TO) ate away at gains from the US, where the focus on defensive companies delivered double-digit returns ahead of the 6.9% rise in the broader market.
Richard Troue, head of investment analysis at Hargreaves Lansdown, said it had been 'a bad year at the office' for Stout.
'Against a backdrop of stagnant economic growth and record-low interest rates, many investors have favoured quality growth stocks for the reliability of their earnings streams, which has left value-orientated funds like this one struggling to keep up,' he said.
But there have been signs of a turnaround. Since the start of the year, the trust has beaten all global equity income rivals, with the shares up 7.2% and net asset value having risen 9.9%.
Last month, analysts at Stifel slapped a 'buy' rating on the trust, as Stout's value approach to investing, for so long out of favour as 'growth' stocks outperformed, appeared to gather traction.
Investors will be hoping the recent resurgence is a sign of a longer term revival for the fund, which despite a torrid three years remains the best performing global income trust over the last 10 years, with a 114% return.
Stout said that while 'predicting the future against a backdrop of unrecognisable factors is arguable futile,' he would continue to stick to his approach.
'Global diversification, firmly out of fashion in an increasingly concentrated global financial landscape, will be maintained,' he said.
'Whilst anything other than a challenging year ahead with potentially increased volatility appears unlikely, Murray International will continue to strive to navigate a smoother course in pursuit of its investment objectives.'
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by Gavin Lumsden on Oct 28, 2016 at 16:26