Despite some underperformance earlier this year, our confidence in Murray International (MYI) is intact.
While the long-term record here is strong, in 2013 the fund underperformed significantly. The team’s focus on quality and valuation meant it didn’t participate in the strong markets driven by low-quality names and the long-standing underweight to the US and Japan and overweight to emerging markets all held it back. But Aberdeen’s focus on quality, and its unconstrained, long-term investment approach, means it typically lags momentum-driven markets where low-quality names rally the most; hence, our concerns are muted.
Indeed, Aberdeen’s approach has been tried-and-tested across a variety of market conditions and we’ve seen them underperform significantly before. The team won’t be tempted into low-quality names to chase short-term gains, nor will they buy companies whose valuations they deem expensive; last year, the latter got more expensive still, further hurting performance.
The team behind this offering is another reason for our conviction—they have witnessed such markets before and they know to stay true to their approach. Manager Bruce Stout started his investing career when he joined Murray Johnstone in 1987 and he started picking this fund’s North American and Latin American stocks soon after. In 1994 he was named deputy and in 2000 he joined Aberdeen when the firm acquired Murray Johnstone. That experience stands him in excellent stead here. But while Stout is the named manager, the reality is that the fund is managed by the global equities team: There’s a named manager here simply because the board likes a single person nominally in charge and accountable for performance.
The board’s view at this fund is that income is as important as capital growth over the long term and thus the commitment to the income flow here shouldn’t be underestimated. The board and manager together have maintained an above-average dividend yield, and for the last four decades the dividend has generally been held or increased each year with just a few exceptions. The revenue reserve is well buffered to ensure this pattern can continue, too.
Indeed, the board has also shown its commitment to issuing shares when the fund trades at a premium. That said, even with their support, in 2013 the premium widened at times to double digits, and has maintained a single-digit premium despite the short-term underperformance. For new shareholders, that creates a danger of overpaying for the assets and the possibility for capital erosion when the premium reduces or even disappears; therefore, we’d caution investors to be mindful of their timing in this regard.
Nonetheless, we think overall this is an excellent offering that is head and shoulders above most peers in terms of consistency and delivery, and thus it retains our highest rating: Gold.
