Investors are rightly nervous when a well-regarded fund manager retires. The departure of Bruce Stout from the £1.9 billion Murray International (LSE: MYI) in June 2024 after 20 years was no exception. In that time he had delivered 20 years of dividend growth from a global income strategy.
Over ten years, MYI has delivered a total return of 8.5% per annum, twice the retail price index. Charges of just 0.5% per year are very low. Borrowings (net of cash) are 5.6% of net assets, being £50 million of loan notes at 2.24% and redeemable in 2031, and £60 million at 2.83%, redeemable in 2037. So, what was not to like? And why did it trade on a discount to net asset value (NAV) of 10% as recently as the beginning of 2025?
Murray International's turning around
The answer was the persistent underperformance of its benchmark index, the MSCI ACWI High Dividend Yield, which compounded at 10.6% over ten years, while the MSCI AC World index compounded at 12.8%. As is so often the case, investors paid a heavy price in terms of total return for a higher-than-market yield.
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However, performance has improved lately, with an investment return in the year to the end of October of 19.7%, four percentage points ahead of the benchmark. MYI is not just the best performer among global income funds over the last year but across all global funds. So what has gone right for Samantha Fitzpatrick and Martin Connaghan, who were co-managers with Stout since 2023 and worked with him on the trust for many years before?
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Stout had maintained a high weighting in Asia ex Japan and emerging-market equities long after the air went out of the bull market around 15 years ago. In the past ten years, emerging markets have underperformed developed markets by 4% per annum, though they have picked up strongly in the last year. Fitzpatrick and Cannaghan maintain a more moderate weighting of 30%, a little less than the North America and Europe weightings. Yes, returns would have been even better in the last year with more in Asia and emerging markets. But income funds are for the cautious who should be worried about taking too much portfolio risk.
Not just high yields
Also encouraging is the duo’s preference for buying out-of-favour stocks rather than just high yielders, and holding them long after the yield has been diminished by capital appreciation. Fitzpatrick cites the example of Broadcom, bought on a 7% yield five years ago and still a 2.5% holding (but probably not for long). It now yields 0.6%. Another example is Taiwan Semiconductor, the second largest holding, which has “run strongly” and now yields 1.4%.
Philip Morris is the largest holding at 4% of the portfolio. Performance has tailed off since mid-year but it had doubled in the previous year, propelled by smoke-free products. BAT is also held as part of the 9.5% invested in the UK. This also includes Diageo, a call that turned out to be premature, but now looks an attractive contrarian bet. A chunky 13.5% is in healthcare (Merck, AbbVie and Sanofi). This sector has been very out of favour, but has now turned the corner.
The most successful area lately has been Latin America, which accounts for just 7% of the portfolio in four companies but has returned 29% this year. Emerging-market bonds are 3.5% of the portfolio. These were “a screaming buy ten years ago; for example, we paid 60 cents in the dollar for Vale bonds”, says Fitzpatrick. “We have not bought any since.”
The portfolio is valued at 15 times prospective earnings, in line with the benchmark index. MYI’s shares, which now trade at around NAV, yield 3.7%, all paid out of income. And while the trust’s overall record under Stout may not have been as good as he is credited with, he seems to have left behind a first-rate team.
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