Building 7

Big improvement in relative performance

Murray International Trust 23 September 2022 Review
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Murray International Trust

Big improvement in relative performance

Investment trusts
Global equities/debt

23 September 2022

Price

1,228.0p

Market cap

£1,539m

Total assets

£1,744m

NAV*

1,294.2p

Discount to NAV

5.1%

*Including income. At 21 September 2022.

Yield

4.5%

Ordinary shares in issue

125.3m

Code/ISIN

MYI/GB0006111909

Primary exchange

LSE

AIC sector

Global equity income

Financial year end

31 December

52-week high/low

1,320.0p

1,076.0p

NAV* high/low

1,341.8p

1,160.8p

*Including income

Net gearing*

11.7%

*At 16 September 2022.

Fund objective

Murray International Trust aims to achieve an above-average dividend yield with long-term growth in dividends and capital ahead of inflation, by investing principally in global equities. Its reference is an all-world index (total return).

Bull points

Unconstrained approach – ability to source interesting opportunities anywhere in the world.

Progressive dividend policy and attractive yield.

Well-resourced investment team, which includes ESG specialists.

Bear points

Large exposure to emerging markets, which can be more volatile than developed regions.

Performance has lagged the reference index over the mid to long term.

FY21 dividend was not fully covered.

Analyst

Mel Jenner

+44 (0)20 3077 5700

Murray International Trust is a research client of Edison Investment Research Limited

Murray International Trust (MYI) employs a team-based approach, headed up by Bruce Stout working closely with Martin Connaghan and Samantha Fitzpatrick, who are part of abrdn’s global equity team. The trust offers investors a globally diversified portfolio of primarily equities (c 90%) with the balance in fixed income securities and cash, broadly split 50:50 between developed and emerging markets. MYI’s portfolio is constructed independently on a bottom-up basis without consideration of the make-up of its global reference index. Nevertheless, as shown in the chart below, the trust’s relative performance has improved over the last year, while it is now first out of the seven funds in the AIC global equity income sector over the last 12 months by quite some margin.

NAV outperformance versus the reference index (one year to end-Aug 2022)

Source: Refinitiv, Edison Investment Research

The analyst’s view

MYI has broad appeal among retail investors with more than 25k shareholders. The trust’s managers focus very much on both capital and income growth, while seeking to protect capital during periods of market weakness. MYI is a traditional income fund paying dividends out of revenue, not capital, using reserves when required. The trust’s receipts are recovering nicely following COVID-19-induced weakness and MYI looks on track for a return to a covered distribution. Despite volatile global stock markets in recent quarters as investors grapple with higher prices and rising interest rates, the trust has delivered a very commendable performance. Over the last year its NAV and share price total returns of +13.4% and +15.4%, respectively, compare with the reference index’s -0.4% total return.

Scope for a narrower discount and attractive yield

Given MYI’s improving relative performance, one could argue that a higher valuation is warranted. The 5.1% discount to cum-income NAV is wider than the 1.0% to 4.8% range of average discounts over the last one, three and five years and compares with the range of a 0.0% premium to a 9.3% discount over the last 12 months. MYI’s board has paid a higher annual dividend for the last 17 consecutive years and for 15 of these the increase has been above the prevailing level of UK inflation. Based on its current share price the trust offers an attractive 4.5% dividend yield.

Market outlook: Be careful what you own

In a world where we are relentlessly bombarded by headlines and short-term views, it is important to retain some perspective. As shown in Exhibit 1 (left-hand side), over the long term, investors have been rewarded by considering global rather than UK equities. However, given the very uncertain macroeconomic backdrop it would seem prudent to be extra vigilant when making investment decisions. Many market participants and corporate management teams do not have experience of operating in an environment of high inflation and rising interest rates, so share price volatility could persist for an extended period. Also, while valuation multiples have moderated, these may prove to be illusory if consensus earnings estimates prove to be too optimistic. A focus on both capital growth and income, seeking reasonably priced companies with robust fundamentals and pricing power that can be held for the long term, may be a sensible strategy to ride out the current storm.

Exhibit 1: Market performance and valuations (last 10 years)

Performance of UK and world indices (£ adjusted)

Datastream indices forward P/E valuations (x)

 

Last

High

Low

10-year
average

Last as % of
average

US

16.6

23.5

12.3

17.6

94

Europe

11.1

17.7

10.4

14.3

78

UK

9.7

15.7

9.7

13.4

72

Japan

12.6

18.6

10.9

14.3

89

Emerging markets

11.8

16.6

11.1

13.1

90

World

13.8

19.9

11.4

15.3

90

Source: Refinitiv, Edison Investment Research. Note: Valuation data at 21 September 2022.

The fund manager: abrdn

The manager’s view: All eyes on inflation

Stout comments that this year has been a very difficult period for investors with inflation re-emerging and the war in Ukraine further negatively affecting global supply chains. He highlights that MYI aims to offer long-term capital growth above the UK Retail Price Index (RPI) (and capital preservation during market weakness), dividend growth above the UK RPI, a covered dividend and an above-average yield. The manager says that in the current environment it will be very difficult to generate above-inflation capital growth given the ultimate UK inflation rate is unknown, although he is very pleased that MYI’s income so far this year has exceeded expectations following on from a very tough 2020. Stout explains that the trust’s annual dividend has grown faster than the rate of UK inflation for 15 of the last 17 years, but with a much higher inflation rate this will be trickier now.

Highlighting the focus on capital preservation, the manager explains that MYI’s relative monthly performance in down markets is +0.76% (83 months), while in up markets it is -0.22% (151 months). Stout stresses that MYI’s portfolio is constructed on a bottom-up rather than a top-down basis, and he says it is important to determine the impact of inflation on investee companies’ businesses. Considering the macroeconomic backdrop, the manager comments that in developed markets such as the UK and the United States there is ‘an obsession with the outlook for short-term interest rates’. The manager suggests that central banks in these regions have been panicked into action in response to rapidly rising inflation and have been hiking rates at the fastest rate in many years. However, he says that economic activity is dependent on the long end of the yield curve and there has already been a significant backup in US and UK long-term bond yields. Stout opines that ‘no-one knows when inflation will peak and where long-term interest rates will end up’. He notes that other countries are nearing the end of their interest rate tightening cycles. In Brazil, the base rate has increased from 2.00% to 13.75% and inflation has moderated, while the manager suggests that the Mexican central bank has been raising interest rates and could start to ease monetary policy in the next few months. Stout comments that some parts of the world are countercyclical, and their central banks were pre-emptive in tightening interest rates in 2021.

Expanding on his perspectives, the manager stresses the importance of understanding long-term inflation. He says that there was inflation in the worldwide economy for the last 20 years, which the markets considered to be acceptable. Stout adds that enormous quantitative easing and the expansion of central banks’ balance sheets and the inflation of government debt was viewed by investors as a good thing, with the additional money printed invested in other assets such as equities, leading to an expansion in equity valuation multiples. The manager says that modest inflation expectations were based on the misguided assumption that interest rates would stay low forever and suggests that the current wage/price inflation is a product of the ‘financial largesse over the last 15 years’.

Stout considers that a 2.0% target inflation rate is ‘delusional’ and looking at past cycles, he notes that it tends to take five-to-six years to bring inflation under control. The manager points to a complete lack of quantitative tightening, even in 2018 when interest rates were rising, and suggests that if this were to happen now it would put upward pressure on longer-dated interest rates; hence, there is no evidence of a stomach for quantitative tightening when it could tip economies into recession. He adds that it is also ‘not a good time to pay more for mortgages when the cost of living is rising significantly’, and we are starting to see the impact of wage inflation on corporate margins. Stout comments that businesses in emerging markets are used to inflation, having experienced it many times before; central banks in these regions have been proactive in response to rising prices, while developed market companies are not used to dealing with extended periods of higher input costs. He adds that inflation distorts valuations, commenting that there has been a steady improvement in corporate margins over the last 15 years, but this could change, especially in labour-intensive industries and the ‘gig economy’. He opines that this has broader implications for credit quality and business financing, and while we are still early on in terms of an interest rate tightening cycle, ‘a lack of profits plus cash burn is a real problem for some companies’.

Turning his attention to China, the manager says that the government’s zero-COVID-19 strategy has dampened corporate earnings. However, activity is recovering and with core inflation consistently below target rates, he believes there is scope for further easing, leading to a recovery in corporate margins, which would be positive for the rest of Asia. Stout says that China remains a very important part of the global equation and it would be very difficult from a political perspective if there was no domestic growth in the country, so it seems fair to assume that the authorities would take active measures to ensure that this does not happen.

Current portfolio positioning

MYI’s board requires that the fund has between 45 and 150 positions; at end-July 2022, there were 54 equities and 19 fixed income securities. The top 10 holdings made up 29.5% of the portfolio, which was broadly in line with 30.0% a year earlier; six positions were common to both periods (Exhibit 2).

ASUR is MYI’s largest holding and is an operator of 16 airports in central and Latin America. The managers stuck with this position during a very difficult COVID-19 affected 2020 as they have faith in how the company has dealt with periods of industry weakness in the past. Its management put cash away for a rainy day and there is a net-cash position on ASUR’s balance sheet. The company has long-term concession agreements with established regulatory frameworks and has consistent and balanced growth between international and domestic traffic, and there is a clear runway on the company’s capex plans for both 2022 and 2023. Around two-thirds of ASUR’s revenues are regulated fees, including airline and passenger fees. However, according to the managers, there are real growth opportunities in its retail, food and beverage, banking and FX, car rental, parking and ground transportation operations. ‘More passengers spending more money and a captive audience offers the company real pricing power in an inflationary environment’ say the managers.

Exhibit 2: Top 10 holdings (at 31 July 2022)

Company

Country

Sector

Portfolio weight %

31 July 2022

31 July 2021*

Grupo Aeroportuario del Sureste (ASUR)

Mexico

Industrials

4.0

3.5

Taiwan Semiconductor Manufacturing Co (TSMC)

Taiwan

Technology

3.5

4.4

Philip Morris

US

Consumer staples

3.2

3.0

AbbVie

US

Healthcare

3.0

N/A

Broadcom

US

Technology

3.0

2.5

CME

US

Financials

2.8

3.0

Sociedad Química y Minera de Chile (SQM)

Chile

Basic materials

2.7

N/A

Unilever

UK

Consumer staples

2.6

N/A

TotalEnergies

France

Energy

2.4

N/A

Oversea-Chinese Banking

Singapore

Financials

2.3

2.3

Top 10 (% of portfolio)

29.5

30.0

Source: MYI, Edison Investment Research. Note: *N/A where not in end-July 2021 top 10.

A stock that has performed particularly well in MYI’s portfolio is top 10 holding SQM, which is a Chile-based lithium and plant nutrient company; its stock has more than doubled this year. Around one-third of its revenues are derived from lithium, where there is a global shortage due to high demand from electric vehicle manufacturers for example. Another third of SQM’s revenues is from potassium, which is used in the manufacture of fertilisers. There is also a global shortage of potash- and potassium-based fertilisers due to the war in Ukraine, which has led to significant price increases. The managers considered it prudent to take profits in MYI’s fertiliser exposure, so they reduced the SQM position and sold the Nutrien holding (see below).

Exhibit 3: Portfolio breakdown by security type and geography (% unless stated)

Portfolio end-July 2022

Portfolio end-July 2021

Change (pp)

Equities

Asia Pacific ex-Japan

26.7

28.2

(1.5)

North America

25.0

27.5

(2.5)

Europe ex-UK

20.2

16.0

4.2

Latin America & EM

12.0

11.6

0.4

UK

5.6

5.8

(0.2)

Africa

0.8

0.6

0.2

 

90.3

89.7

0.6

Bonds/cash

 

 

 

Latin America & EM

3.6

4.0

(0.4)

Asia Pacific ex-Japan

2.7

3.9

(1.2)

Africa

0.9

1.0

(0.1)

UK

0.4

0.5

(0.1)

Europe ex-UK

0.3

0.6

(0.3)

Cash

1.8

0.4

1.4

 

9.7

10.4

(0.7)

Total

 

 

 

Asia Pacific ex-Japan

29.4

32.1

(2.7)

North America

25.0

27.5

(2.5)

Latin America & EM

15.6

15.6

0.0

Europe ex-UK

20.5

16.6

3.9

UK

6.0

6.3

(0.3)

Africa

1.7

1.6

0.1

Cash

1.8

0.4

1.4

100.0

100.0

 

Source: MYI, Edison Investment Research. Note: EM is emerging markets. Numbers subject to rounding.

Exhibit 3 shows MYI’s geographic exposure. Over the 12 months to end-July 2022, the largest changes were a 3.9pp higher weighting to Europe ex-UK and lower allocations to Asia Pacific ex-Japan (-2.7pp) and North America (-2.5pp).

Fitzpatrick explains that MYI’s portfolio activity in H122 was higher than normal as market volatility led to more attractive opportunities. Siemens entered the portfolio in February 2022 and is a diversified German multi-industrial company that is benefiting from the trends of increased automation and electrification. Its shares trade at a discount due to the firm’s conglomerate structure, which provided the managers with a favourable entry point. Danone was purchased in April 2022 to further diversify MYI’s consumer staples exposure. The company is a major global player in the dairy and water categories and has a new management team, which offers a turnaround opportunity. Investors are sceptical about this occurring, which allowed the managers to initiate a position at an opportune price. BE Semiconductor was added to the portfolio in February 2022 and was funded by reducing MYI’s semiconductor exposure in TSMC and GlobalWafers. The company has a leading position in advanced packaging within the semiconductor industry and its customers include industry heavyweights Intel and TSMC. While the BE Semiconductor position has not performed well since purchase, the managers are confident about the company’s long-term growth prospects helped by the digital and cloud infrastructure build out and the growth in 5G networks, artificial intelligence, data centres and electric vehicles, among others. They believe that BE Semiconductor is a well-managed business that brings ‘something a little bit different’ to the portfolio. The Woodside Energy position is a result of BHP selling its petroleum portfolio to the company in exchange for Woodside Energy shares, as BHP is focusing on its cleaner gas assets and strengthening its balance sheet. MYI’s holding was switched from UK- to Australia-listed shares due to lower liquidity in Woodside’s UK listing.

Complete disposals in the fund were all on valuation grounds. PepsiCo was trading on a 20-year high earnings multiple, with an unattractive dividend yield and cost pressures were weighing on its margins. Nutrien’s shares had performed well on the back of rising potash prices, while Schlumberger’s shares had done relatively well within the energy sector; this was a relatively small position and there is a trend of an increasing number of orders heading towards the alternative energy rather than the oilfield services sector. MYI had a holding in an Indian corporate bond that was trading above par so was used as a source of cash in March 2022 to add to the positions in Zurich Insurance group and Nordea.

Relative performance: Better during market volatility

Exhibit 4: Five-year discrete performance data

12 months ending

Share price
(%)

NAV
(%)

Index*
(%)

CBOE UK All Companies (%)

MSCI World ex-UK (%)

MSCI AC World (%)

31/08/18

(8.9)

(5.9)

8.7

4.3

11.5

11.0

31/08/19

7.0

8.1

4.6

0.3

7.3

7.0

31/08/20

(13.6)

(12.6)

2.4

(13.5)

7.6

6.5

31/08/21

25.6

28.0

25.7

27.1

25.7

25.7

31/08/22

15.4

13.4

(0.4)

1.8

(0.4)

(0.0)

Source: Refinitiv. Note: All % on a total return basis in pounds sterling. *Index is 40% UK and 60% World ex-UK until 27 April 2020 and a broad global index thereafter.

In H122 (ending 30 June), MYI’s NAV and share price total returns of +3.8% and +9.5% respectively were considerably better than the reference index’s -10.5% total return. By geography, the best performing regions were UK equities +27.2% (2.8% of end-H122 NAV), Latin American equities +24.1% (11.9%) and North American equities +13.6% (25.1%), while the worst performing were European equities -5.4% (22.6%) and Asian equities -5.1% (27.1%).

There was a wide range of sector returns in H122, with the best performing being basic materials +36.3% (7.5%), energy +32.0% (9.6%) and healthcare +19.8% (11.5%), and the worst performing by far were technology -24.0% (14.1%) and utilities -21.9% (1.1%).

Exhibit 5: Investment trust performance to 31 August 2022

Price, NAV and index total return performance, one-year rebased

Price, NAV and index total return performance (%)

Source: Refinitiv, Edison Investment Research. Note: Three-, five- and 10-year performance figures annualised.

Exhibit 6: Share price and NAV total return performance, relative to indices (%)

 

One month

Three months

Six months

One year

Three years

Five years

10 years

Price relative to index

0.3

(6.3)

5.5

15.8

(2.4)

(16.3)

(30.5)

NAV relative to index

2.6

(3.7)

3.2

13.8

(1.2)

(11.5)

(22.9)

Price relative to CBOE UK All Companies

2.9

(0.6)

9.5

13.3

11.8

4.3

1.9

NAV relative to CBOE UK All Companies

5.3

2.1

7.2

11.4

13.2

10.3

13.0

Price relative to MSCI World ex-UK

0.3

(6.3)

5.5

15.8

(7.1)

(24.3)

(42.8)

NAV relative to MSCI World ex-UK

2.6

(3.7)

3.2

13.8

(6.0)

(20.0)

(36.5)

Price relative to MSCI AC World

0.4

(6.1)

5.5

15.4

(6.4)

(23.2)

(40.7)

NAV relative to MSCI AC World

2.7

(3.5)

3.3

13.4

(5.3)

(18.8)

(34.2)

Source: Refinitiv, Edison Investment Research. Note: Data to end-August 2022. Geometric calculation.

MYI’s performance has improved over the last year as investors have moved away from their multi-year preference for growth stocks due to rising interest rates. Its NAV and share price are ahead of the reference index over one, six and 12 months. Illustrating the potential benefits of investing overseas, the trust has outperformed the broad UK market over almost all the periods shown in Exhibit 6 in both NAV and share price terms. Stout believes that MYI’s current reference index keeps things simple but does not reflect what the trust is trying to achieve in terms of long-term capital growth, while preserving capital during periods of stock market weakness, and an above-average dividend yield with real income growth. The manager points to MYI’s more than 25k individual investors who like the team’s investment approach and often contrarian views.

Exhibit 7: NAV total return performance relative to index over three years

Source: Refinitiv, Edison Investment Research

Peer group comparison

MYI is by far the largest of the seven funds in the AIC global equity income sector. They follow a range of different investment mandates; for example, MYI is differentiated by its c 50% exposure to emerging markets and currently has a single-digit percentage weight in fixed-income securities. The trust’s more-defensive portfolio has performed relatively well so far in 2022 as investor appetite for growth stocks has waned in an environment of rising interest rates. As a result, MYI’s NAV total return ranks first over the last 12 months, a not insubstantial 11.8pp above the peer-group average and 4.2pp higher than the second-ranked fund. The trust’s NAV total return is above average over the last three years, ranking fifth, but trails over five and 10 years ranking sixth over both periods. MYI’s discount is below average in a group where only one fund is trading at a premium and one has a noticeably wide discount. The trust has a competitive ongoing charge, ranking second (no performance fee is payable) and it has the highest level of gearing. MYI is the second-highest yielding fund, which is 0.5pp above the mean.

Exhibit 8: AIC global equity income sector at 20 September 2022*

% unless stated

Market cap £m

NAV TR
1 year

NAV TR
3 year

NAV TR
5 year

NAV TR
10 year

Discount (cum-fair)

Ongoing charge

Perf.
fee

Net gearing

Dividend yield (%)

Murray International

1,538.5

16.5

25.8

32.9

112.6

(5.1)

0.6

No

112

4.5

Henderson International Income

328.8

6.4

19.3

35.2

160.5

(7.0)

0.8

No

107

4.3

Invesco Perp Select Global Equity Inc

55.7

4.8

26.3

41.7

186.7

(8.1)

0.8

No

110

3.2

JPMorgan Global Growth & Income

1,282.5

4.5

45.6

73.2

255.6

(1.7)

0.5

No

106

4.0

Majedie Investments

90.9

(13.8)

(14.1)

(13.8)

50.9

(26.2)

1.1

Yes

108

6.6

Scottish American

852.4

2.0

34.2

63.9

198.0

(5.0)

0.6

No

110

2.8

Securities Trust of Scotland

235.6

12.3

26.6

53.0

159.2

1.6

0.9

No

106

2.5

Average

626.3

4.7

23.4

40.9

160.5

(7.4)

0.8

108

4.0

MYI rank in sector (7 funds)

1

1

5

6

6

4

2

1

2

Source: Morningstar, Edison Investment Research. Note: *Performance at 21 September 2022 based on ex-par NAV. TR, total return. Net gearing is total assets less cash and equivalents as a percentage of net assets.

Dividends: Progressive policy

MYI’s H122 income of £45.5m was a meaningful 23.2% increase year-on-year as the trust’s receipts are recovering from the COVID-19 induced weakness. The board has announced that the FY22 annual dividend will at least match the 55.0p per share (0.94x covered) FY21 distribution, although MYI’s annual dividend has increased for the last 17 consecutive years. At end-H122, the trust had £63.3m of revenue reserves, which is equivalent to c 0.9x the last annual payment. Since 2021, the managers can write covered put and call options on underlying portfolio investments and employ stock lending to generate a modestly higher level of income. Based on its current share price, MYI offers an attractive 4.5% dividend yield.

Exhibit 9: Dividend history since FY16

Source: Bloomberg, Edison Investment Research

With the improving income profile, Stout suggests that the trust is on track for a covered divided. He says that the largest dividend improvements have come from banks, insurance and energy companies. However, firms can come under political pressure if their dividend growth is considered to be too high, especially given the rising cost of living; hence, companies are also returning cash to shareholders via share repurchases, which is not MYI’s preferred option. There have also been a couple of dividend cuts in the portfolio including Taiwanese semiconductor company GlobalWafers, where a deal to buy German-based Siltronic fell through due to a lack of approval by the German regulators meaning GlobalWafers now has higher internal funding requirements.

Valuation: Discount in narrowing trend

Over the course of 2022 to-date, MYI’s discount has been in a narrowing trend (Exhibit 10), which may be reflecting the trust’s improved relative performance. The 5.1% discount to cum-income NAV compares with a range of a 0.0% premium to a 9.3% discount over the last 12 months. Over the last one, three and five years the trust’s average discounts are 4.8%, 2.2% and 1.0% respectively.

Exhibit 10: Discount over three years (%)

Exhibit 11: Buybacks and issuance

Source: Refinitiv, Edison Investment Research

Source: Morningstar, Edison Investment Research

Exhibit 10: Discount over three years (%)

Source: Refinitiv, Edison Investment Research

Exhibit 11: Buybacks and issuance

Source: Morningstar, Edison Investment Research

Renewed annually, the board has the authority to issue up to 10% and repurchase up to 14.99% of MYI’s issued share capital. Aiming to reduce volatility in the trust’s valuation and make a small positive contribution to the NAV, the board repurchases shares if they trade at a persistent discount to ex-income NAV, while issuing shares if they trade at a persistent premium to cum-income NAV. During H122, a modest c 0.5m shares were repurchased and held in treasury, which was c 0.4% of MYI’s share base.

Fund profile: Differentiated geographic exposure

Launched in December 1907, MYI is one of the oldest UK investment trusts; it is listed on the Main Market of the London Stock Exchange. Bruce Stout, a senior investment director in abrdn’s global equity team, has been the trust’s lead manager since 2004, although he has been directly involved with MYI since 1992. He works closely with investment directors Martin Connaghan and Samantha Fitzpatrick. The team aims to generate long-term capital growth (while preserving capital during periods of stock market weakness) and an above-average dividend yield from a globally diversified portfolio of equities and fixed-income securities. Around 50% of the fund is invested in emerging markets as the managers believe these regions offer the prospect of higher economic growth alongside relatively attractive company valuations.

MYI’s performance is measured against an all-world reference index; before 27 April 2020 it was benchmarked against a composite measure (40% UK and 60% world ex-UK). The trust’s investment objective was also changed on this date, aiming to achieve an above-average dividend yield, with long-term growth in dividends and capital ahead of inflation, by investing principally in global equities (MYI’s prior aim was to achieve a total return greater than its benchmark by investing predominantly in equities worldwide). The board believes the different wording gives shareholders a clearer picture of what the trust is trying to deliver.

There are no geographic or sector limits on portfolio construction, but at the time of investment, a maximum 5% of the fund is permitted in a single security, although in practice this percentage is much lower. From time to time, the trust may invest in equity-related securities such as depositary receipts, preference shares or unlisted companies and derivatives are permitted for efficient portfolio management. Gearing of up to 30% of NAV is permitted (in normal market conditions); at 16 September 2022, net gearing was 11.7%.

Investment process: Bottom-up stock selection

Stocks are selected on a bottom-up basis, so sector, regional and country allocations are a result of these decisions. abrdn employs a long-term approach, focusing on companies that its research analysts identify as high quality. Firms are considered on five key factors: the durability of its business model and its economic moat; the attractiveness of the industry in which it operates; the strength of its financials; the capability of its management team; and an assessment of its ESG credentials. Company valuations are assessed across a variety of relevant measures including earnings yields, free cash flow yields and dividend yields. The managers select companies that have the most attractive quality and valuation characteristics, while offering the best expected risk-adjusted returns. abrdn uses a global coverage list that is constructed by each of the specialist regional analyst teams (UK, Europe, Asia Pacific ex-Japan, North America, Japan and emerging markets) containing all companies with buy-and-hold recommendations, which provides the trust’s investment universe.

For MYI’s fixed-income holdings, the process for selecting and monitoring both sovereign and corporate bonds follows the same methodology used for equity investment. Portfolio geographic and sector exposures are a function of each security’s relative valuation and prospects. Within the portfolio there are typically 60–80 companies across the market-cap spectrum ranging from position sizes of between c 1% and c 5%. Equity holdings are generally initiated at around 1.0% to 1.5% of the fund, while initial fixed income positions tend to be smaller. If a holding reaches 5% of the portfolio, it is trimmed within 30 days and the manager will sell a holding within 30 days if it is no longer rated buy or hold on abrdn’s global coverage list, subject to the timing of dividend payments.

MYI’s approach to ESG

Although ESG and climate-related factors are not the overriding criteria in relation to the managers’ portfolio decisions, they do form a very important part of the investment process and have done so for more than 30 years for three key reasons:

Financial returns – ESG factors can be financially material; companies that take their responsibilities seriously tend to outperform those that do not.

Fuller insight – systematically assessing a company’s ESG risks and opportunities alongside other financial metrics leads to better investment decisions.

Corporate advancement – informed and constructive engagement helps foster higher-quality companies, thereby protecting and enhancing the value of MYI’s investments.

The managers can draw on the resources of abrdn’s ESG equity analysts and central ESG investment team (more than 20 experienced specialists) who collaborate to generate a deep understanding of the ESG risks and opportunities associated with each company analysed.

Climate change risks are vast and becoming increasingly financially material for many of abrdn’s investments not only in the high-emitting sectors, such as energy, utilities and transportation, but also along the supply chain, for providers of finance and those reliant on agricultural outputs and water. Companies that successfully manage climate change risks are expected to perform better over the long term.

A systematic and globally applied approach to evaluating stocks allows abrdn to compare companies consistently on their ESG credentials, both regionally and against their peer group. Findings from research and company meetings are captured in formal research notes. All firms analysed are allocated an ESG rating between 1 and 5, where 1 is best in class; 2, leader; 3, average; 4, below average; and 5, laggard. Once abrdn invests in a company, it is committed to helping that firm maintain or raise its ESG standards further. Regular engagement is seen as a necessary fulfilment of its duty as a responsible steward of clients’ assets and provides an opportunity to share examples of best practice seen in other companies.

Gearing

MYI has total borrowings of £200m with The Royal Bank of Scotland International (RBSI): a £50m 10-year senior unsecured loan note at an all-in annualised interest rate of 2.240% expiring on 31 May 2031 and three unsecured fixed-rate term loans (£60m at 2.830% expiring on 31 May 2037, £60m at 2.328% expiring on 31 May 2023 and £30m at 2.250% expiring on 16 May 2024). The trust also has a £150m facility available for drawdown, which the board intends to use to repay MYI’s RBSI debt as it falls due over the coming years. At 16 September 2022, net gearing was 11.7%.

Fees and charges

From 1 January 2022, MYI has a reduced tiered fee structure of 0.5% of NAV up to £500m and 0.4% of NAV above this level (previously 0.5% of NAV up to £1.2bn and 0.425% of NAV above £1.2bn). It is split 30:70 between the revenue and capital accounts respectively. In H122, the trust’s ongoing charge was 0.55%, which was 4bp lower than 0.59% in FY21. The board remains focused on controlling costs, so the lower management fee should help to contribute to a further reduction in the ongoing charge in the future.

Capital structure

Exhibit 12: Major shareholders

Exhibit 13: Average daily volume

Source: abrdn. Note: At 31 July 2022.

Source: Refinitiv. Note: 12 months to 21 September 2022.

Exhibit 12: Major shareholders

Source: abrdn. Note: At 31 July 2022.

Exhibit 13: Average daily volume

Source: Refinitiv. Note: 12 months to 21 September 2022.

MYI is a conventional investment trust with one class of share; there are 125.3m ordinary shares in issue, with a further 4.1m shares held in treasury, and its average daily trading volume over the last 12 months is c 175k shares.

The board

Exhibit 14: MYI’s board of directors at the end of FY21

Board member

Date of appointment

Remuneration in FY21

Shareholding at 3 March 2022

David Hardie (chairman)*

1 May 2014

£38,280

15,643

Alexandra Mackesy

1 May 2016

£29,570

975

Claire Binyon

1 May 2018

£32,117

1,213

Nicholas Melhuish

1 May 2021

£18,667

2,563

Source: MYI. Note: *Appointed as interim chairman in August 2021 and chairman in October 2021.

On 22 June 2022, the board announced the appointment of Virginia Holmes as an independent non-executive director with immediate effect. As the former CEO of AXA Investment Management, she brings significant senior asset management expertise and experience to MYI’s board. Holmes is currently chair of trustees at the Unilever Pension Fund, senior independent director at Syncona and European Opportunities Trust and chair of the remuneration committee at Intermediate Capital Group. She was previously chair of USS Investment Management and of BA Pension Trustees, a founder director of the Investor Forum, non-executive director of Standard Life Investments and chair of the investment committee at Alberta Investment Management Corporation.

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This report has been commissioned by Murray International Trust and prepared and issued by Edison, in consideration of a fee payable by Murray International Trust. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

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New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Murray International Trust and prepared and issued by Edison, in consideration of a fee payable by Murray International Trust. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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