The US shares we’ve bought, and taking some tech profits

In part one of our video interview, Murray International co-fund manager Samantha Fitzpatrick explains how the income investment trust takes full advantage of its global remit in pursuit of its aim to deliver an above average dividend yield, which is currently 3.9%.

The trust is also one of the Association of Investment Company’s (AIC) “dividend heroes”, having a 20-year unbroken record of raising shareholder payouts.

In an interview with interactive investor’s Kyle Caldwell, Fitzpatrick names high-yielding shares in the portfolio, explains why the trust is upping US exposure and new additions, as well discussing trends within tech.

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Kyle Caldwell, funds and investment education editor at interactive investor: Hello, and welcome to our latest Insider Interview. Today in the studio, I have with me Samantha Fitzpatrick, co-fund manager of Murray International Ord (LSE:MYI) investment trust. Samantha, thanks for your time today.

Samantha Fitzpatrick, co-fund manager of Murray International: My pleasure.

Kyle Caldwell: So, Samantha, let’s start off with your investment process and objective. You invest in global equities, and aim to deliver an above average dividend yield. You’re also aiming for overall total returns to beat inflation. So, how do you achieve those objectives?

Samantha Fitzpatrick: It’s really important that we do address both because people associate the trust very much with the income angle, but we want to deliver real returns over time from a total return perspective also. That means it’s very useful to be able to truly use the global remit and invest in lots of different types of businesses.

So, an above average dividend yield typically means about 4.5%, but it’s not the case that every single investment has to deliver that level of income. What we can do is operate more of a barbell approach. So, you have certain companies that are there predominantly for the income. You know, they’re really consistent pairs.

That gives you then the flexibility to go a bit further down the yield spectrum and other types of companies that perhaps can deliver more upside from a capital perspective. Sometimes you’re really lucky and you get both from the same stock, but that’s how we approach it overall.

Kyle Caldwell: Could you talk through the main qualities or attributes you are seeking in a global business in order for that company to win a place in the portfolio?

Samantha Fitzpatrick: Yes, as much as I say that you’ll get companies that are tilted more one way or the other, we want every single investment to contribute towards that income perspective.

So, that would be an obvious screen we would do on an income, a pair. It doesn’t have to be huge, but it’s got to be something, and what we want is to see evidence of growth in the dividend over time.

So again, that gives you confidence to invest perhaps in a lower-yielding name, but with that potential over time and other aspects that won’t be any surprise to people, we want companies with strong balance sheets that enables that dividend to be paid year in, year out, hopefully. We want companies with well-established management teams and that, hopefully, have been through difficulty in the past and you can [then] see how the management team copes with that.

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Kyle Caldwell: As you’ve mentioned, the portfolio isn’t full of high-yielding businesses to achieve the aim of an above average dividend yield. However, could you name some of the companies in the portfolio today that are among the highest yielders?

Samantha Fitzpatrick: Sure, there’s a real mix actually. So, you will get in the trust companies that do deliver consistency on the income side. That’s typically some of your telecoms names, for example. We own TELUS International (Cda) Inc Ordinary Shares (Sub Voting) (TSE:TIXT) in Canada, for example, which is paying about a 7% dividend yield, very consistent.

Then you will also have, at times, more cyclical names that are in a sweet spot that they’re paying out quite a lot of income to shareholders in that way. At the moment, we’ve got names such as Woodside Energy Group Ltd (ASX:WDS), a predominantly gas energy company in Australia, that has cut its dividend, but it’s still on a 9% dividend yield.

Then you get other names that are perhaps a bit more vulnerable on the dividend side, something like Taylor Wimpey (LSE:TW.), for example, in the UK, that as things stand, is on a 7% dividend yield.

But that’s because the share price has come down quite a lot in that name. So, we go into that with an open mind. We know that perhaps next year it could cut that dividend, but as things currently stand, there are examples of three very different businesses that right here, right now, are offering a high dividend yield.

Kyle Caldwell: In terms of country allocation, you’ve had a long-standing underweight position to the US stock market. That remains the case today. Around a third of the portfolio is in US shares. However, I did notice that you’ve been increasing some exposure of late and you’ve introduced a couple of new positions. Could you talk through them and explain why?

Samantha Fitzpatrick: Absolutely, yes. So, it’s not that we’re against the US. Sometimes people can get the wrong impression. All the weightings are a result of where we’re seeing stock opportunities, with an eye on diversification at all times.

But recently, you’re right, we have introduced a couple of new US names, one of which is Lowe's Companies Inc (NYSE:LOW). So, a company that we wouldn’t be familiar with here in the UK, but it’s the second-largest home improvement store in the US. The biggest one is The Home Depot Inc (NYSE:HD).

The idea behind investing in Lowe’s is that it’s really closing the gap with the best in the industry, and Home Depot is the best. If you look at returns, if you look performance, that’s the one that they have to get closer to, and they have done that. You can see evidence of real margin improvement over time, and partly that’s to do with a new management team coming in from Home Depot.

So, they’ve done it, they know how to transform this business, get more into the professional customer, rather than your kind of typical DIY player, because it means that that type of customer tends to spend more and come back more often. So, they’ve made huge strides in actually closing the gap with this bigger peer.

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The thing that held us back from Lowe’s before was that it’s not a terribly big yielder. It’s about a 2% dividend yield, which for us is quite measly. But how we got round that is by funding it from some other stocks that were even lower.

So, some of the tech names just now, for example, are really low yielders because the stock price has been so strong in some of these names. So, we got around that issue by top-slicing some tech and putting it to work there. So, still income uplift, but giving you a different type of business in the portfolio, which is useful.

Other names I could mention at the end of last year are things like Coca-Cola HBC AG (LSE:CCH). So, just a really steady quality company, with a good yield. That had been quite weak on the valuation side because it was caught up in the GLP-1 [glucagon-like peptide-1] story. So, some would have you believe that if people go on weight-loss drugs, they’re not going to touch anything that’s a treat anymore. We think that story was vastly overplayed with the likes of Coke back in December last year.

The third one that’s a relatively new holding is Medtronic (NYSE:MDT). A US company still in healthcare, but something a bit different, some more medical devices rather than purely pharma. Since we introduced that one, it’s performed really pretty well. So, a range of different businesses in the US.

Kyle Caldwell: It’s not uncommon to see a global fund or investment trust only invest in developed markets. However, Murray International does have a good amount of exposure to the Asia-Pacific and Latin American regions, which combined account for around a third of the portfolio. Could you summarise where you’re seeing the opportunities in those markets?

Samantha Fitzpatrick: Sure. We just think, why would you not look everywhere? We’ve got a range of different people, analysts, going to meet businesses all the time and we’re presented with really good stock ideas. So, we want to use that global remit as best we can, and we do have, as I say, people on the ground in Brazil, Singapore and all these different markets. And they know these businesses.

Often what we find is you get really good opportunities, but a lot cheaper than you could if you were just limiting yourself to developed markets. So, it’s really about just trying to spread that exposure and treat them not as anything different. They’re not getting special treatment by any means, but if they stack up from a quality perspective, if we like the management team, if they can deliver something a bit different and help with that income story, then why not?

Kyle Caldwell: You mentioned earlier that you’ve taken some money out of technology. It does, though, remain a key sector in the portfolio. Could you talk through the opportunities you’re seeing and trends that you’re investing in within the technology sector?

Samantha Fitzpatrick: Sure, we got a bit lucky with tech, to be honest with you, because one of the biggest holdings we have at the moment is Broadcom Inc (NASDAQ:AVGO), which is really hitting the headlines for all the right reasons.

It’s an AI story, but when we went into that several years ago now, it was for more of a yield angle. It was a 7% dividend yielder when we were into that one. It was good business, but it was a business that was involved in different areas. It was company that bought other companies and improved them, and that’s still part of the story. But we do have some AI exposure, as I say, through Broadcom.

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• Watch our video: why we’re upping exposure to US shares

We have Taiwan Semiconductor Manufacturing Co Ltd ADR (NYSE:TSM), which is exposed to semiconductors, but really, really well diversified. That one, I think, is a fabulous company. It’s a really cutting-edge company that makes chips for other people, and no one else can do what it does to the scale that it does it in. So, that’s another big holding within tech.

We have tried to broaden our exposure. So, we had mostly all our exposure in tech within semiconductors because we could make the yields work there. But, very recently, just a couple of months ago, we introduced Infosys Ltd ADR (NYSE:INFY) into the trust. So, one that had been on our watchlist for a while, and this is different.

It’s an Indian-based company, but it’s global in terms of its remit, and it produces more consultancy, more services. So, giving you a different angle, not hardware. We’ve got a bit of that in Cisco Systems Inc (NASDAQ:CSCO).

So, what we’re trying to do, again, within tech is not just be a one-trick pony. The AI stories work very well for us, but we’re very aware that semis are cyclical. And AI, I think, could prove to have some ups and downs. We’ve seen that a bit so far this year. So, trying to have a broad range of exposure within that category makes sense to us.

Kyle Caldwell: Samantha, thank you for your time today.

Samantha Fitzpatrick: You’re very welcome, thank you.

Kyle Caldwell: So, that’s it for our latest Insider Interview. Hope you’ve enjoyed it. You can let us know what you think, you can comment. If you enjoyed it, please hit the like button and do hit the subscribe button for future fund manager videos. I’ll hopefully see you again next time.