An income fund with a contrarian bent

What does this tell us about income investing? Not much on the face of it, given these companies might simply be trying to sweeten up shareholders with small payouts. However, it does illustrate a common dilemma: global investors often have to look beyond the obvious big tech names, and beyond the outperforming US market, to find higher yields. 

This is certainly the case for Murray International (MYI), a trust whose shares trade on a dividend yield of 4.7 per cent. The fund does not cling to the US or the Magnificent Seven as a way of chasing performance, but instead looks further afield – 28 per cent of the portfolio is based in Europe, a similar proportion is in North America and a slightly lower allocation is in the Asia Pacific region. Latin American companies also crop up here and there. 

The fund’s top holdings represent a variety of sectors too, and include emerging market favourite Taiwan Semiconductor Manufacturing (TW:2330), energy giant TotalEnergies (FR:TTE), tobacco stalwart Philip Morris (US:PM) and Unilever (ULVR), a name well-known to UK income hunters.

The fund has a reasonably deep pool of investments, with 51 equity holdings and 14 fixed-income positions, and has long focused on financially strong companies that, crucially, can grow and deliver dividends over time. 

The investment team has shown some disdain for the current state of the market, noting that stocks in the developed world are currently “priced for perfection”, and stressed the need to branch out beyond today’s darlings.

Markets currently carry expectations “that inflation is dead, that interest rates are about to dramatically decline, that bond yields will follow suit, that economies will enjoy soft landings and corporate earnings will remain unaffected throughout”, the team stated. 

“With many such expectations distinctly ‘mutually exclusive’, far from having their cake and eating it, investors are more likely to experience bouts of nauseating indigestion over the coming months.”

It’s worth noting that, like many global funds that try to avoid the S&P 500’s most prominent players, Murray International has sometimes paid the price for its contrarian stance and lagged markets. Shareholders are sitting on a return of around 35 per cent for the past five-year period, well behind the sterling gain of roughly 75 per cent delivered by the MSCI World index.

Having said that, investors are being paid to wait: as we noted in November last year, the fund consistently stands out from its peers for throwing off a good level of income, meaning dividend-hunters should be satisfied, even if it does little to rival the total returns that have been made by the likes of the Magnificent Seven. 

FE data shows that, had you put £10,000 into the shares at the end of 2022, you would have received around £800 in dividends over the course of 2023. This puts it ahead of all other investment trusts in the AIC’s Global and Global Equity Income sector on this front.

As with many trusts known for their yields, Murray International also has a long track record of increasing its dividend, having now done so for 19 consecutive years. The board intends to maintain this progressive policy and has a decent level of revenue reserves to protect payouts in more challenging times, with dividend cover recently amounting to 1.1-times.

Despite this, the trust trades at a discount of around 11 per cent to portfolio net asset value (NAV). 

A lesson from 2022

It is also important to remember that market conditions can change quickly.

Murray International’s performance looks underwhelming in a world that is dominated by a handful of growth stocks. 2023 demonstrated this clearly enough, with shareholders enjoying a total return of just 5.1 per cent versus 16.8 per cent from the MSCI World index. 

In other periods, though, the trust’s alternative approach has been very lucrative. 2022 was a very challenging year for growth investments such as tech shares, with inflation and interest rate hikes dominating the agenda. It saw the MSCI World index take a bath to the tune of nearly 8 per cent in sterling terms. By contrast, Murray International shares – thanks to the fund’s exposure to a variety of regions and some more cyclical sectors – made a chunky total return of around 20 per cent. 

Returning to its geographic preferences, the fund also offers exposure to Asia, which has looked increasingly attractive from a yield perspective.

The investment team used the trust’s most recent annual report to criticise western economies and markets, arguing that “financial fundamentals elsewhere paint a very different picture. Unburdened by ageing demographics, excessive systemic debt and free to benefit from prudent, long-term orthodox economics, the developing world evolves without its delusions and the psychological baggage of false entitlement.

“Most of all, from an investment perspective, modest expectations are achievable. Lessons learned throughout Asia and Latin America over many decades suggest a healthy aversion to banking risk, credit risk corporate leverage and dollar dependency.”

The investment team accepted that international risk appetite for most emerging market assets proved “largely indifferent last year”, suppressed by high-profile problems emanating from China and geopolitical tensions impacting currencies, but said “numerous historical examples exist where such complacency can rapidly change”.

Like many global income funds, Murray International also tends to shy away from the UK market, meaning there is little chance of overlap for those who already use domestic shares, directly or via funds, as a source of yield. That means the fund can act as another type of useful diversifier, given the UK market can have its own ups and downs.

Murray International is not without its problems. There is no denying the risks involved in backing Asian equities or the frustration that can come from ignoring some of the hottest stocks in the US today. But it is a diversifier that has proved its worth in difficult times, and one that has continued to pay out a handsome income through thick and thin.