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Trust Insider: Murray International's runaway premium spells trouble
by James Carthew on Sep 17, 2013 at 00:01
I like the way he goes about constructing the portfolio. Stocks are selected from the recommendations of Aberdeen’s regional fund management teams without reference to benchmark weights and macro views are supposed to be secondary to stock selection; it is a bit like a best ideas fund.
Stout’s other main job is to make sure the portfolio is adequately diversified. There is a small element of fixed interest in the fund – about 6.5% at the end of July 2013. The equity portion of the fund was spread across 52 holdings then with the top 20 accounting for 52% of the portfolio.
The board permits Stout to have between 50 and 150 equity positions so he is well down at the bottom of this range and I applaud his high conviction style of investing. He keeps the turnover fairly low.
He has been aiming to position the portfolio defensively since 2010 as he has been worried about high government debt and the potential long-term effects of quantitative easing (QE), which he describes as ‘economic vandalism’.
He is vociferous about the potential fallout from the unwinding of QE and seems to be quite cautious about the macro outlook; he has been highlighting the anaemic growth achieved by many highly regarded companies.
His view, that Western governments have been storing up trouble by expanding the balance sheets of their central banks while most but not all governments in Asia and Latin America have been more cautious, has influenced MI’s asset allocation.
Reducing EM exposure
For the moment nervous investors, particularly those in the US, have been reducing their positions in these countries – for them it is a knee-jerk response to increased uncertainty (in this case triggered by Federal Reserve chair Ben Bernanke’s comments on the end of QE).
The big unknown is whether this traditional flight to the safety of home markets is misguided today. MI is not the only global fund to have made a big bet on the long-term outperformance of Asian and emerging economies but it has made a more extreme bet than almost all of the rest of the peer group and it is also light on exposure to the US, which has been unhelpful in recent months.
As I read back through MI’s reports while writing this article, one thing struck me – for all that this is supposed to be a stock-picking and not a macro-driven fund, most of the commentary seems to be about macro developments. The performance attribution analysis included within the report and accounts bears out the superior contribution from stock selection though (more positive than asset allocation in four of the past five years).
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