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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.

 
Murray International cuts fees after another bleak year

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.

UK holdings Shell (RDSb), BHP Billiton (BLT) and Weir (WEIR) slumped, while his holding in Italian oil services company Tenaris (TENR.MI) dented performance of the European portion of the portfolio.

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.'

7 comments so far. Why not have your say?

dlp6666

Mar 14, 2016 at 12:35

"after three successive years of underperformance versus the benchmark, the performance fee has been among the least of investors' worries"

That sums it up quite neatly!

The good c.5% yield is surely propping up the share price to a large extent, though at least seems to be sustainable (£58.6m paid in dividends last year, leaving slightly increased revenue reserves of £67.7m)

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Micawber

Mar 14, 2016 at 14:05

My beef with the lugubrious Stout was that while he professed a cautious approach, his judgment calls have been anything but. Notably Brazil, including Brazilian fixed interest. Poor call. However, for one reason (slump in value) and another (belated adjustments in pf) it now occupies a more proportionate place in the pf (and, moreover is rising at the moment).

It was MYI's position as an emerging market hedge that nevertheless led me to take a small stake for Mrs M last year. I doubled that at the beginning of this year and it's up around 6.4% year-to-date, The realisation that the manager is not a wizard, the abandonment of the ridiculously high premium, the respectable yield and now a modest reduction in charges have made MYI again a candidate for investor pfs IMO. But still a risky one rather than one for capital protection.

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Keith Cobby

Mar 14, 2016 at 14:14

I consider myself a patient investor but finally had enough of this and sold last year. I also sold out of my Aberdeen asian trusts which are also poor performers.

I don't know what's happening at Aberdeen but most of their trusts are at the bottom of the heap. They have a big presence in Asia and make a big thing of their company visits but none of this seems to aid performance.

My conclusion is that they haven't realised the world has changed and are still hoping that something will turn up.

In the meantime what is the point of a good dividend yield if the total return is poor and you are eating your capital.

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The Old Man

Mar 14, 2016 at 14:17

As always Micawber your analysis and comments are astute and I too have been adding to my holdings recently. I have a feeling that the shares will return to their all time high before too long, meanwhile we can always bank the dividend to assuage our impatience.

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Micawber

Mar 14, 2016 at 15:44

Keith: I think the problem for Aberdeen is that they are so weighted towards emerging (esp. Asian) markets that they could not help being caught out by the dramatic decline of over 20% in the sector as a whole last year. That, and the sentiment against emerging markets following the precipitous declines in oil and commodities, and the knock-on effects of the Fed's inflexion point for interest rates, plus money coming out of the markets for sovereign wealth funds, have resulted in a right old hammering. You can add past over-enthusiasm of retail investors for India (based wholly on sentiment following the elections, plus a good Central Bank governor) and Thailand which is now being deflated. Hard times for ADN, with assets under management declining precipitously.

However...... if the next Fed move upwards does not cause a repeat convulsion, and as we've lately seen some recovery in still-weak oil and commodity prices, and as emerging markets are looking cheap on comparisons, it may be that the bottom has now passed. I certainly have ADN on my watchlist - having invested in it from 2012 to 2013.

That said, I think it unwise to forget that most emerging markets have governance problems, corruption problems, nationalist problems, liquidity problems., and *deserve* to be at a discount to developed markets despite their nominal growth rates being generally higher..

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Keith Cobby

Mar 14, 2016 at 16:35

I agree about Aberdeen's EM travails but this doesn't explain their poor performance in the UK Equity Income sector.

Bruce Stout and Hugh Young have been good managers in the days before central banks manipulated the markets. Things may return to 'normal' for Stout and Young but my money has left them. Quite a bit of it has gone to James Anderson and Tom Slater. Scottish Mortgage used to be stuffed full of commodity and Latin American stocks but the managers saw that the tide had turned and acted.

I suspect it may be time for Stout and Young to retire.

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Sinic

Mar 14, 2016 at 18:06

I bought Murray International early in February and I am delighted to note that the share price has increased by no less than 10.89% in that time and the discount narrowed.

A number of the 'talking heads' seem to hold the view that Stouts previously successful style of investment management is once again becoming appropriate for current market conditions. I do hope that this isn't a flash in the pan but a sign of things to come.

Although I recognise that it is not a trust which immediately springs to mind for the safety conscious I am happy for it to take a modest place in my portfolio. After all some of my 'safe havens' have been anything but (Merchants Trust, Temple Bar) over the last couple of years!

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