Bruce Stout warns of ‘extremely challenging’ times ahead for investors

The veteran investor struck a cautious tone as Murray International reported that it had comfortably outpaced its benchmark in the first half of 2022. 

Defensive stocks shone for Murray International (LSE:MYI) in the first six months of 2022, leading to a net asset value (NAV) total return of 3.8% versus a loss of 10.5% for its benchmark, the FTSE All-World index.

Its share price performance was higher, up 9.5%, as its discount narrowed from 6.8% to 1.8% over the period.

Stout invests in “quality” companies, which includes exposure to defensive sectors and industries. He highlighted that his defensive stock picks performed positively over the six-month period, with all the trust’s US weighting (25%) in such companies. Murray International is a member of interactive investor’s Super 60 list of fund ideas.

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“Canadian pipeline operatorsTC Energy Corp (NYSE:TRP)andEnbridge Inc (NYSE:ENB)were standout performers against a backdrop of rising energy prices and relatively inelastic gas demand. Exposures to global healthcare companiesJohnson & Johnson (NYSE:JNJ), AbbVie (NYSE:ABBV)andBristol-Myers (NYSE:BMY)also delivered solid double-digit aggregate total returns, accompanied by strong dividend growth underlining their respective strengths in cash flows and balance sheets.

“Stable total-returning telecommunication holdings inVerizon (NYSE:VZ)andTelus(TSE:TIXT)justified their portfolio inclusions, as didCME Group (NASDAQ:CME)from which profits were top-sliced during the period.”

Stout also pointed to resilience from defensive Asia holdings, including telecom firmsSingapore Telecommunications (SGX:Z74), Telekom IndonesiaandTaiwan Mobile. “Strong cash-flow dynamics and above-average dividend yields became increasingly attractive to global investors,” said Stout.

The trust’s 40% exposure to Asia-Pacific, emerging markets and Latin America sets it apart from other global investment trusts and funds, which tend to stick to developed markets. Its dividend yield, currently 4.5%, is also higher than most rivals. In its half-year report, the trust said it intends to maintain a progressive dividend policy. It has increased its payouts for the past 16 years.

Giving his outlook for markets, the veteran investor struck a cautious tone. He highlighted that central bankers had lost “credibility”, and investors will have to wait to see whether “they tighten too much and cause recession or tighten too little and watch inflation spiral out of control”.

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Stout said: “The investment environment is likely to remain extremely challenging. In addition to ‘traditional’ inflation of prices and wages, the Covid pandemic, war in Ukraine, and climate change is prompting companies and governments to scrutinise global linkages for resilience, security and sustainability.

“The halcyon days of globalisation may well be over, suggesting a return to increasing market rigidity with less focus on just sourcing the cheapest possible price. The portfolio remains focused on geographical and sector diversification, real assets and quality balance sheets for an increasingly opaque outlook where financial risk remains fraught with uncertainty.”