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Trust Insider: Murray International's runaway premium spells trouble
by James Carthew on Sep 17, 2013 at 00:01
The past couple of months have been difficult ones for these companies though and, while checking to see how STS was faring, I noticed that the giant of the sector, Murray International (MI) has been suffering more than most.
Over the past six months MI’s NAV has fallen by 7.8% while on average the rest of the sector is up 2.3%. Despite this MI still sits on the largest premium of its peer group; a staggering 12%. I do not think the MI board should ever have let the premium get that large but this rating must be vulnerable if the run of poor performance persists.
MI does issue shares to try to meet demand (and has issued well over £300 million worth over the past few years) but tends to suspend issuance prior to paying dividends to reduce the dilution of the revenue account. The last share issue was on 12 June 2013 and this was done on an 11% premium.
MI is a £1.2 billion fund (with a market cap of £1.4 billion). It trades on a yield of 3.8%, which, if it were rated in line with the rest of the peer group would put it second highest after British Assets . Dividends are paid quarterly and have risen 2.5 times over the past 10 years, well ahead of inflation.
Gearing is limited to 30% of net assets and currently it is around 14%, which is towards the top end for the peer group; it has also contributed to MI’s recent underperformance.
Until recently all of the borrowing was in Japanese yen but most of the currency exposure was hedged out so the fund benefited modestly as the yen weakened from mid-2012 onwards. The hedging did let investors sleep easier at night however, and a big call on a currency would not be consistent with the fund’s stock picking style.
Since 4 June 2013, part of the yen gearing has been replaced by a £120 million facility provided by RBS.
Its benchmark is 40% the FTSE All-Share Index and 60% the FTSE All-World ex UK and at the moment it is quite underweight the UK (just 14.5% of the portfolio at the end of July 2013) but quite overweight Asia (23%) and emerging markets (20%). It is MI’s asset allocation which has probably had the biggest adverse impact on the fund this year.
Bruce Stout has been managing the fund since 2004. He is charged with outperforming the benchmark on a total return basis and growing the revenue account to generate an above average dividend yield.
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