Murray International raises dividend, but underperforms due to lack of tech

Fund manager Bruce Stout is optimistic performance will improve in 2021. 

Despite a tough year, Murray International Trust (LSE:MYI) has today announced an increase of its dividend payments for the 2020 financial year. If approved by shareholders, the trust will pay a final dividend of 18.5p per share on 18 May 2021.

The proposed final dividend will bring the trust’s total payments for the year up to 54.5p per share. That would represent a 1.9% increase from the previous year, in which investors were paid 53.5p per share. Assuming the payment is approved by shareholders, it would represent the 16th year in a row the trust has upped its dividend payments.

However, as the trust notes, the past year was the “toughest income environment for close to 20 years”. As a result, a large part of the dividend payment will come from the trust’s reserves.

As the trust notes: “The payment of the final dividend will use approximately £10.2 million from accumulated revenue reserves, amounting to approximately 15% of these reserves.”

This underlines one of the key benefits of investment trust for income investors; when dividend payments from companies dry up, they can draw on their accumulated reserves to maintain or even increase payments.

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Less positive, however, was the trust detailing the extent of its underperformance in 2020. Its net asset value (NAV) total return stood at just 0.9% for the year. Meanwhile, its share price total return declined by 5.3%. The share price was weighed down by the trust moving from a 5.9% premium to NAV at the start of the year to a discount of 0.7% by the end of 2020. In contrast, its benchmark index returned 7%. The benchmark comprised 60% FTSE World ex UK Index/40% FTSE World UK Index up to April 2020, but then switched to 100% FTSE All World TR Index from May 2020.

In regards to this, the trust noted: “Relative underperformance to the reference index must be noted but, given the prevailing portfolio orientation, is hardly surprising. Overall market conditions for dividend-paying companies proved extremely hostile.”

However, the trust noted that a major reason for the underperformance was their relative underweighting towards technology stocks.

The trust expects performance to pick up. According to chairman Kevin Carter, the trust is well positioned to benefit from the Covid-19 recovery due to its global mandate. He notes: “From an investment perspective, the company’s unconstrained global mandate offers great flexibility.”

He added: “While the developed world’s pandemic debt legacy may be long-lasting, numerous other parts of the world appear less constrained. Recent evidence already shows growth rebounding and business recovering in a number of Asian and developing countries that quickly contained infection rates last year.”

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Meanwhile, fund manager Bruce Stout highlighted opportunities to be found in cyclical and value stocks. He noted: “Does the investment landscape really believe the world no longer needs such essential services as gas and electricity, construction materials like cement, concrete, iron and steel, not to mention other so-called cyclical assets be it property, insurance, Asia or Emerging Markets?

“Relative underperformance, attractive absolute valuations and scope for significant sentiment change towards companies that remain productive, profitable and providers of the population’s evolving needs offer compelling future investment opportunities for the company going forward. By strict adherence to the proven practice of investing in high-quality, financially strong companies, great scope exists to capitalise on such positive prospects.”

ii’s view

Murray International is one of interactive investor’s Super 60 picks. The trust pays a market-beating yield, currently just under 5%. We like its focus on Asia Pacific and emerging market companies, rather than just the UK, US and Europe, which sets it apart from other global equity income funds and trusts, which tend to mainly stick to developed markets.