Murray International Trust – Half-Yearly Results

HIGHLIGHTS

PERFORMANCE (TOTAL RETURN)

INTERIM BOARD REPORT

Background

The period under review has been particularly difficult for the Company as politics and protectionism dominated the financial landscape.  The issue of trade protectionism proved the greatest influence on financial markets.  Instigated by the United States, under the guise of 'America First', retributional tariffs have quickly escalated worldwide.  As global growth prospects diminished with each and every new import tax, numerous financial markets took fright.  The consequential rout, particularly in those Asian and Emerging markets most exposed to global trade, proved punitive for the Company over the period.

Performance and Dividends

The net asset value (NAV) total return, with net income reinvested, for the six months to 30 June 2018 decreased by 8.0% compared with a total return of +2.2% for the Company's benchmark (40% FTSE World UK and 60% FTSE World ex UK).  Over the six month period, the share price total return decreased by 7.5%.

Following significant capital appreciation throughout fiscal years 2016 and 2017, the overall portfolio struggled with numerous negative influences over the six month period.  By far the largest contributing factor to absolute overall negative returns was the Company's material exposure to Asia and Emerging Markets.  Despite arguably superior growth prospects at the individual company level, international investor sentiment became almost universally negative, influenced by the potentially regressive impacts of protectionism.  Against Sterling, the Brazilian Real and Indian Rupee declined 11% and 6% respectively over the six month period. This sharp currency weakness against Sterling and rapid outflows by short-term investors caused extreme weakness in Asian equities, Latin American equities and Emerging Market bonds.  Taken together, the Company's overweight exposure to these asset classes accounted for about seventy percent of absolute and relative underperformance.  Such extreme volatility within financial markets is not without precedent but, over such a short time period, the recent aversion to the Emerging Markets Asset class appears excessive and overdone, especially given underlying fundamentals. 

On a sector basis, it is worth noting the continued outperformance of US and Chinese Technology stocks over the period (to which the Company, for income reasons, has little exposure) and also the disappointing relative performance of consumer staple companies.  Overall, portfolio diversification proved ineffective in what became an increasingly “polarised” market environment.  We remain confident in the Manager's disciplined and pragmatic approach in pursuit of the long term investment objectives of the Company.

Management of Premium and Discount

The Board continues to believe that it is appropriate to seek to address temporary imbalances of supply and demand for the Company's shares which might otherwise result in a recurring material discount or premium. Subject to existing shareholder permissions (given at the last AGM) and prevailing market conditions, the Board intends to continue to buy back shares and issue new shares (or sell shares from Treasury) if shares trade at a persistent significant discount to NAV (excluding income) or premium to NAV (including income). The Board believes that this process is in all shareholders' interests as it seeks to reduce volatility in the premium or discount to underlying NAV whilst also making a small positive contribution to the NAV. 

During the period under review, this has resulted in the sale from Treasury of 357,665 Ordinary shares at a premium to the prevailing NAV (including income) per Ordinary share. No shares were bought by the Company during the period or subsequently.  As at the close of business on 14 August 2018, the NAV per share was 1148.0p (exclusive of income) and the share price was 1150.0p equating to a premium of 0.1% per Ordinary share.

Gearing

The Company recently agreed a new £60 million loan facility with The Royal Bank of Scotland plc (“RBS”) to replace an expiring facility of the same amount. The new facility was drawn in full on 31 May 2018 and fixed for five years at an all-in rate of 2.328%. At the period end the Company had net gearing of 11.3%.

Directorate

As indicated in the last Annual Report, Mr Jim Best retired from the Board at the conclusion of the AGM on 26 April 2018.  On 1 May 2018 Ms Claire Binyon joined the Board as an independent non executive Director, following the conclusion of a rigorous search conducted with the assistance of an independent external recruitment agency. Ms Binyon is a chartered accountant who, following an early career in corporate finance in the City, has embarked on a successful career working for global multinationals in areas of corporate development, strategic planning and finance.  Ms Binyon is currently group corporate development director at Fenner PLC, having previously served as head of strategy and corporate development at DS Smith Plc, following similar roles in other multinational companies including Cadbury plc and InBev S.A.

Outlook

I have previously openly cautioned on the difficulties inherent in the current financial landscape and the risks associated with attempting to reverse over a decade of unorthodox economic policies.  The United States Federal Reserve is raising interest rates against a backdrop of record indebtedness and this will pose significant challenges for governments and households globally.  Nearly ten years into a business cycle, during which the unorthodox policy of quantitative easing has dominated, adjusting monetary policy safely will likely prove tough to achieve.  For financial markets currently close to record high valuations and increasingly accustomed to only upward momentum, the likelihood of slower growth and lower corporate profits remains largely ignored, at least for now.

Positioning the portfolio to withstand the probable increase in market volatility that will accompany these developing realities is not going to be straightforward.  Delivering the Company's investment objective over the long term will best be achieved by investing in companies with sound fundamentals and competent managements, in combination with the Company's ability to construct a portfolio with wide global diversification.

Kevin Carter

Chairman

15 August 2018