Cash for re-investment £10,430.00

Murray International

22 December 2023

Disclaimer

Disclosure – Independent Investment Research

This is independent research issued by Kepler Partners LLP. The analyst who has prepared this research is not aware of Kepler Partners LLP having a relationship with the company covered in this research report and/or a conflict of interest which is likely to impair the objectivity of the research and this report should accordingly be viewed as independent.

MYI’s diversified approach may offer stability in an uncertain environment…

Overview

Murray International (MYI) offers investors a benchmark-agnostic approach to delivering long-term capital growth alongside a high yield and a growing dividend. MYI has been managed by industry veteran Bruce Stout since 2004, who will retire in June 2024. However, Bruce has worked closely with Martin Connaghan and Samantha Fitzpatrick since 2001, and in June 2023, Martin and Samantha were made co-managers of the trust to help ensure a smooth transition

As discussed in Portfolio, the investment process is expected to remain consistent. The managers look to maintain a well-diversified, benchmark-agnostic portfolio, limiting the exposures to any one geography or sector. The importance of generating an attractive yield has led to a lower allocation to typically growthier, lower yielding markets such as the US, when compared to standard global equity indices in favour of Europe and a meaningful allocation to the emerging markets and Asia. In addition, the valuation-sensitive approach has influenced the trust’s sector allocation which is typically geared to higher yielding sectors such as telecommunications, energy, and materials. An allocation to emerging markets fixed income has bolstered yield in the past, however, this has significantly reduced since the pandemic, reflecting the valuation opportunities and the strength of underlying holdings. The Dividend has returned to being fully covered, providing a yield of 4.6%

Strong Performance has tended to occur in value-driven environments such as 2022. However, during periods of growth dominance MYI has tended to lag broader equity markets with higher technology exposures. That said, the diversification has resulted in some downside protection. The manager’s caution is reflected in the historically low level of Gearing following the repayment of £60m tranche of debt in in May 2023.

MYI currently trades on a 5% Discount which is at the wider end of the trust’s long-term discount range and compares to a five-year average discount of 2%.

Analyst’s View

In our view, MYI is well positioned to offer a level of stability for investors during a period where markets are still struggling to find an equilibrium. Although Bruce is retiring in 2024, we believe it is unlikely there will be any change in the style of management. The highly diversified, benchmark-agnostic approach has provided some protection against drawdowns when compared to a broader global equity peer group and broader equity indexes. However, the distinctive value sensitive approach employed by the managers can leave the trust lagging in times of strong growth. With inflationary pressures significantly off their peaks and interest rates in the developed markets plateauing, this may mean a period of underperformance.

However, the underlying quality of the holdings has been reflected in the most recent dividend, which returned to being fully covered by underlying revenue following two years of being supplemented by the trust’s significant revenue reserves. This has ensured MYI’s impressive track record of 18 years of consecutive dividend growth has continued. Despite high interest rates currently on offer, we believe MYI still offers an attractive yield which can offer support to the total returns objective when capital growth is under pressure.

MYI’s discount has been volatile; however, there is a clear long-term range where the board actively issues and buys back shares when required. With the discount at 5.5% this is at the lower bound of the range and may offer a good long-term entry opportunity.

Bull

• Highly diversified, benchmark-agnostic portfolio relative to alternative strategies
• Discount wider than long-term average
• High yield versus peers and 18 consecutive years of dividend growth

Bear

• Retirement of longstanding manager
• May lag in growth-driven markets
• £30m tranche of debt repayable in 2024 which would be expensive to replace

……………………….

With a current yield of 4.6% not a contender for the portfolio.

As u can see from the chart HFEL has had torrid time, which means the

dividend yield has grown to 11%.

Dividend

The Board has again increased its dividend to shareholders, marking 16 consecutive years of uninterrupted dividend progress. A total dividend of 24.20p has been paid in respect of the year ended 31 August 2023, representing a 1.7% increase on the dividend paid last year.

In keeping with the outcome of our discussions on strategy and implementation, we have opted to augment our fourth interim dividend using the Company’s substantial reserves. We have therefore covered £5.7m of the dividend from distributable reserves. Doing so enables our Fund Managers to better position the portfolio, with scope to invest in a greater number of companies with higher growth characteristics. 30/11/23

The big advantage for investors is that Investment Trusts can build up

reserves in good times to supplement dividends in less good times.

Sunday share tips: Top picks to consider for 2024

The Sunday Times and Mail on Sunday have offered their top investment tips for 2024, which includes stocks from a variety of sectors such cruises and market research to metals and real estate.

Business writers from The Sunday Times each gave their individual choices on what stocks to back. Here are a selection of their best picks.

First up was Oliver Gill who recommended investors take a look at housebuilder Persimmon following a tough year for the sector in 2023. In November, the company reported it was trading in line with forecasts and that build costs were moderating. Meanwhile, it has earmarked £8m to cover the cost of cladding following the Grenfell disaster, which is a lot more than others in the sector. “Whichever way you look at it, this move by the York-based housebuilder could stand it in good stead in 2024,” Gill said.

William Turvill has highlighted market research firm YouGov, given the company’s political polling services will be in demand amid the “prospect of political turbulence in 2024”.

Jill Treanor says professional services group Begbies Traynor is worth a shot, as the company’s insolvency services could be much needed with the economic climate set to sour further in the UK next year.

Carnival is another top pick, according to Jon Yeomans, with the cruise-ship operator set to deliver another record-breaking year for revenues in 2024 with customer demand on an upwards trajectory.

Oliver Shah recommends accountancy and business software group Sage despite the stock having already risen 60% in 2023. “My bet, however, is that integrating artificial intelligence into the company’s products will put new boosters under the share price. I am hoping for at least 10 per cent from Sage in 2024,” Shah said.

Over at the Mail on Sunday, Joanne Hart’s Midas column has highlighted four key stocks to take a look at in 2024.

Hart said Empire Metals, the AIM-listed miner based in Western Australia, could surge given it may have discovered one of the biggest titanium deposits in the world.

“Early-stage exploration firms are not for the faint-hearted but adventurous investors should give Empire a go. At 9.3p, Empire shares could go far,” Hart said.

Midas also recommends Royal Mail owner International Distribution Services, whose shares have halved over the past two years. Hart said the stock “has been through the mill but at £2.72, the shares should deliver rewards in time. Buy and hold”.

Commercial property firm Land Securities is also worth a look, and offers “plenty of upside” after a tough year during which elevated interest rates hit share prices across the real estate sector. “Land Securities has had a tough few years but prospects are much brighter. At £7.05, these shares are a buy,” Hart wrote.

Finally, cellular agriculture firm Agronomics could stand to benefit from the booming cultivated meat industry, which could be worth £20bn a year by 2030, the column said. “Agronomics provides investors with a chance to access this market at an early stage and the shares, at 9.5p, are worth a punt.”

SHARECAST

One of the best traders, who publishes their trades.

Difficult to trade due to the time lapse in publishing

and as u can see below don’t even think about copying

the trades unless u have an extremely strong stop loss

policy,

U want to invest in the FTSE dividend shares but u do not have enough cash

to provide diversification , IUKD currently yields a variable 6%

so u get paid whilst u wait for the FTSE to recover, just in case

it doesn’t, for a long while.

No discounts to worry about, so you get all the growth in the ETF

straightaway.

Tradeable exactly as Investment Trusts.

There are only 3 stages of a chart.

Up Down Sideways.

You bought MRCH after the covid crash as it was in your watch list of

Dividend Hero’s.

The buying price was 350p and the yield was 8 percent.

When it reached it’s high of 600p, u would have received dividends of 75p achieving the holy grail of investing of being able to take out your stake and carry on receiving dividends on an investment that cost u nothing, zero, zilch.

Investing is all about timing and then time in.

Here you could have bought from the chart at 350p after it fell from

560p. The yield was 8 per cent, important as the price could have

carried on down.

Welcome to the 2023/24 Backwards and Forwards Zone

Are you finding yourself thinking about 2023 and 2024 in equal measure? If you are, fear not you are not alone. For chances are you’ve entered the BFZ – the Backwards and Forwards Zone. Confused? Have a read of the latest Doceo Insights and all will become clear…

ByFrank Buhagiar•28 Dec, 2023

It’s that time of the year again. No, not Christmas – although it is the festive season of course, it’s just not the topic for this piece. No, it’s also that time of the year when the baton is passed from the old year to the new. A time when commentators can find themselves afflicted by a temporary but nonetheless chronic condition – one that seemingly makes the victim look in diametrically opposed directions simultaneously, specifically back at the year drawing to an end/just gone and forwards to the one fast-approaching/just arrived. In short, they have entered the Backwards and Forwards Zone. London’s investment trust world is no exception. Neither is this commentator…

The Backwards bit

This year’s entry into the zone prompted, like last year, by the Association of Investment Companies (AIC) Investment company 2023 review, which was published with a couple of weeks to spare on 13 December 2023. The AIC’s roundup kicks off with the following:

“2023 has seen four mergers between investment companies, eight liquidations and eight investment companies change managers as boards responded to difficult market conditions and deep discounts, according to data from the Association of Investment Companies (AIC).”

“…difficult market conditions and deep discounts…” – 2023’s been a tough one for London’s investment company space.

The review continues: “There will be nine manager changes in total following the appointment of Asset Value Investors to manage MIGO Opportunities on 15 December – the largest number of manager changes in a year since 2009.”

Manager changes – a sign of challenging times? 2009 certainly was, courtesy of the Global Financial Crisis (GFC).

Back to the opening section of the AIC review: “The discount of the average investment company has remained in double figures through the whole of 2023, the only year this has happened since the financial crisis. The average investment company discount started the year at 11.7% and hit a post-2008 trough of 16.9% at the end of October before recovering to 11.1%…”

Another reference to the GFC – it was that tough.

One way to try to narrow steep discounts? Deploy buybacks. No surprise then that, according to the AIC, “It has been a record year for share buybacks, with £3.57bn of shares repurchased in the year to date, compared to £2.70bn during the whole of 2022, a 32% increase, according to statistics from Winterflood and Morningstar…”

Big jump in buybacks – a symptom then of a difficult year.

Other headline grabbers from the AIC review tell a similar story:

• Only two initial public offerings (IPOs) year to date…safe to say that tally won’t be added to between now and the end of the year – Ashoka WhiteOak Emerging Markets listed on the London Stock Exchange after raising £30.5 million; and Onward Opportunities listed on AIM in March, raising £12.8 million

• £1.1bn in secondary fundraisings (funds raised by existing investment companies) year to date, sharply lower than last year’s £5.2 billion

• £6.32bn dividends paid out by investment companies during the first 11 months of the year, a 14% increase on the previous year’s £5.55bn

• Total industry assets of £260 billion as at end of November, £5bn off the £265bn at the start of the year

• 26 investment companies altered their fee structures. According to the AIC: “The most common type of fee change was a reduction in a company’s base fee (11 companies) and the second most common was a reduction in a tiered fee (10 companies). In addition, 7 companies introduced tiered fees for the first time and two companies removed their performance fees…”

All in all, the passing of 2023 unlikely to be mourned by London’s investment companies.

The Inbetween bit

Several interesting threads among the various stats in the AIC Review to pick up on: how the steep discounts peaked in October and then narrowed; the high level of mergers and liquidations; 26 companies lowering their fees. Each worthy of a closer look:

Post-October narrowing of discount rates – as previously reported in Doceo Insights Was it all down to the commentator’s curse?, the post-October narrowing in discounts coincided with a drop in bond yields. Hardly a surprise. In the above Doceo Insights, the finger of blame for those wide discounts in the first place was largely pointed at…higher bond yields: ‘Winterflood’s Emma Bird, as quoted by interactive investor back in September 2023, singles out higher bond yields: “Government bonds now offer a meaningful yield for the first time in many years, which has led to significant equity outflows in order to support growing fixed-income asset allocations. Furthermore, asset classes such as infrastructure and property have been hit particularly hard, as investors anticipated a fall in net asset values due to the impact of rising discount rates and an increased cost of debt, while share prices also fell as the yield pick-up versus UK gilts narrowed, making the trusts look relatively less attractive.”’

It follows then that were those bond yields to fall, then those wide discounts would likely shrink too. As the same Doceo Insights article noted: ‘…the week ended Friday 3 November 2023 saw a significant downwards move in bond yields…10-year US Treasuries ended the week around the 4.5-4.6% level. Significant daylight then between those levels and the 5% mark that had been prevalent for much of October, a month that saw more and more investment companies caught up in the discount doldrums.’ Cue a reduction in the number of investment companies trading at 52-week high discounts: ‘…41 trusts trading at 52-week high discounts over the course of the week ended 3 November 2023, is already 15 fewer than the previous week’s 56.’

Not all down to bond yields though. Other dynamics were highlighted by Winterflood’s Ms Bird too. Back to the above Doceo Insights: ‘According to Ms Bird, the discount widening seen “…is likely caused by a number of factors, including: some investors favouring fixed income over equities, institutional investors experiencing outflows from their own funds, retail and institutional investors awaiting more macroeconomic certainty before (re-)entering the market, and concerns over the perceived costs of investment trusts in light of cost disclosure rules, particularly following the publication of Investment Association guidance last year.’

The high level of mergers and liquidations – brings to mind another Doceo Insights piece Two mergers, one wind down and a sprinkling of gold dust which was centred around broker Winterflood’s list of Potentially Sub-scale Funds, a list that, at the time of writing, had successfully predicted “Two mergers, one wind down, one potential wind up – four (potential) servings of corporate activity across the combined 13-strong watch list. Quite some return. And that’s just after a little over six months. Winterflood’s Sub-scale Watch List – one to watch…”.

Now, when putting together the list, ‘The broker looked for common themes from the various deals that had been announced in the run up to May 2023, particularly those involving funds deemed to be sub-scale. As Winterflood writes: “…three key themes emerge. Each can be used as a lens for assessing which trusts in the universe may currently fit the definition of sub-scale, and hence may be susceptible to upcoming corporate action.’ With nine more names on the list, who’s to say Winterflood won’t add to its score?

The high level of mergers and liquidations, yet another sign of a challenging 2023, but also evidence that the investment company space is putting its house in order – smallish funds are looking to merge to achieve scale and become more attractive to investors; and trusts are electing to wind themselves up and return capital to shareholders, capital which could be reinvested elsewhere in the sector.

26 companies have lowered their fees – what about Ms Bird’s ‘concerns over the perceived costs of investment trusts in light of cost disclosure rules…’? Over to broker Numis for a quick recap: “The cost disclosure issue centres around the fact that there is a single cost number in the KID document which is used by investors, such as private wealth managers and multi-asset/manager funds, and aggregated into their own cost disclosures to their underlying clients. As a result, Investment Companies look expensive in a portfolio versus direct equities…” In short, not a level playing field for investment companies which are made to look more expensive than other vehicles.

Here, there have been definite signs of movement – cost disclosure rules were recently debated in Parliament and are seemingly on the government/regulator to-do-list. A start at least. If the result is a more level playing field in terms of cost disclosure, then according to Numis this “would give much greater scope for a range of investors to increase exposure to the Investment Companies sector or return after exiting their positions.” One to keep an eye on then, but with 26 fee rates effectively lowered during the year, investment companies are already helping themselves on the cost front.

Tailwinds provided by lower bond yields; investment companies taking action to make themselves more appealing to investors either by increasing their scale or lowering their fees; funds winding down and returning capital to investors – all brings us on to…

The Forwards bit

For it’s just possible that these positive developments/trends will persist and, in the process, help lay the foundations for a much better year for London’s investment companies. Cue forwards-looking commentary from investment company investor MIGO Opportunities (MIGO) extracted from the fund’s recently published Half-year Report. As investment manager Nick Greenwood writes in his Review:

“We have heard the death knell sounded for investment trusts many times before. The sector has always evolved and progressed.” The fund manager goes on to explain that: “There are self-help measures which can be adopted. Oversupply can be dealt with via buy backs. The law of natural selection is alive and well in the world of closed end funds and we expect to see the recent trend of mergers and wind downs to continue. There are new audiences to focus on, such as self-directed investors and newer wealth management businesses often staffed by individuals who have departed the vast chains. Despite experimental capital structures being mooted, the closed-end fund is the best structure for accessing illiquid asset classes. The travails of open-ended property funds sum up the challenges and explain why investment trusts will continue to exist.”

The fund manager continues: “In recent weeks the outlook has brightened as expectations of further interest rate rises have petered out. Investors will now anticipate their eventual decline. Many investment trust share prices are languishing at levels which generate attractive yields for investors buying today. Should interest rates actually fall, this attraction will grow further. In the medium term such wide discounts are unsustainable as, if the market fails to properly value closed ended funds for structural reasons, then the real world will claim the underlying assets on the cheap albeit at higher levels than today. Furthermore, should there prove to be a sensible reform of the cost disclosure regime, we should expect trust share prices to rally sharply as investors who have been forced onto the sidelines are allowed to return to the market.”

Before concluding with: “Generally speaking, when discounts have become very wide trust investors have then benefitted from the powerful combination of rising net asset values and narrowing discounts. Given the widespread opportunities to exploit mis pricings, our cash position steadily declined during the period under review and has continued to decline since.” MIGO putting its money where its mouth is.

“The thing is potentially the tailwinds behind the investment trust sector are quite substantial…markets seem more confident, the (FED) pivot is certainly happening in America (and) may happen in the UK as well…So you’ve got potentially declining interest rates (and) cash becoming less exciting.” The same goes for bonds. As David points out: “There’s lots of people who are saying that although fixed income is more interesting, most of the gains have already been made…because you’ve already seen the yields drop down.” And then there are specific features of investment trusts to consider too: “You might see leverage coming in to play i.e. gearing…and that active overlay which should be providing above benchmark returns. That could all be a very strong tailwind behind the investment trust sector…You could move from quite substantial discounts…to quite positive numbers…and that geared return of discounts tightening and the underlying markets doing quite well could be a really powerful tailwind.”

Reaching for the stars

At least two commentators then thinking that with lashings of fair winds and following seas, the stars could well be aligning for a much better year for London’s investment company space (all written with fingers well and truly crossed). But ho ho ho! Enough of looking backwards and forwards (for now at least). Time to focus on the here and now. That means there can be only one more thing left to say:

HERE’S TO A HAPPY AND PROSPEROUS NEW YEAR FOR ALL FROM THE TEAM AT DOCEO.