An Investment Trust Searching for High Income

VIDEO: Bruce Stout, manager of the Murray International Income Trust, talks investing for income and opportunities in emerging markets

Holly Black 1 September, 2021 | 10:00AM
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Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Bruce Stout. He is manager of the Murray International Trust. Hello. 

Bruce Stout: Morning, Holly. 

Black: So Bruce, nice and easy one to start you off with, what does the Trust aim to do? 

Stout: So the aim of Murray International is to provide high income for investors, obviously, we want to grow the dividend over time. We want to grow the capital over time as well, but primarily is to provide a high income for shareholders. 

Black: And how has that been over the past year? Obviously, there were a raft of dividend cuts last year. So you talk about growing the dividend there, but I think even maintaining a dividend was difficult. 

Stout: Absolutely. And I guess that's where the investment trust structure came into its own last year, because Murray International had amassed a pile of revenue reserves over a long period of time. And therefore, during a very difficult 2020, we were able to dip into revenue reserves and maintain dividend growth throughout that period. And obviously, for open ended income funds, it was much more difficult. It could only be a quite the end. So that was good. One thing I might also want to say so just from an overall income perspective is we used to talk about above average income and dividend yields in investment trusts. But bond yields are so low now I mean, 10-year bond today is 50 basis points that the equity yield on some of these investment trusts looks very attractive relative to bonds. 

Black: So obviously, it's easier to provide a good income against base rate or bond yields. But how about when we start factoring in inflation rising and trying to keep up with living costs? 

Stout: Yeah, well, that's a very interesting question, because we've not had to factor in inflation for a long time. And Murray International has managed to deliver real income growth pretty much every year for the last 15 years. But this year might be one of the toughest years to actually grow the dividend in real terms, because we don't know what inflation is going to be. And the anecdotal evidence says that there are a lot of pricing pressures around, the authorities tell us it's temporary. But that remains to be seen. So we may well be going into a very different environment in which to try and grow the dividend. But we'll just have to wait and see how it pans out.

Black: So with that in mind, are there certain sectors where you're finding the best opportunities at the moment? 

Stout: I think, it's common knowledge, obviously, that things like the miners have been very strong with dividend payments, because commodity prices have been so high. But what we try to do in Murray International is have a very diversified portfolio, so that we get our income from all sources in the portfolio. And therefore, to do that, we're looking for companies with strong balance sheets that over a long period of time have been committed to delivering income growth and have a proven track record. And that's exactly the type of business we want to invest in. And we find those in Asia, emerging markets, Europe, and even more and more so in the U.K., in the U.S. sorry, where stock buybacks have dried up after the pandemic, and dividend growth has been obviously quite good in the U.S. in the last 12 months.

Black: You named some markets there the U.S., China and emerging markets generally which you don't generally associate with dividend payout. So is that changing?

Stout: Yeah, I mean, that is something that really has changed. And it's been an advantage, I think, for Murray International because if we look back 20 years ago, MINT had over 45% of its assets in the U.K., because the U.K. pretty much had a monopoly on higher yield and dividend growth. But in the last 10, 15 years, we've seen lots of companies in Asia embrace total return to shareholders and increase dividends. And it just means the pool of opportunity has grown for us. And we can get more diversification, both in terms of assets and businesses. And as I said before, even a place like America, which traditionally had very low yields, some companies are really beginning to embrace the idea of returning cash to shareholders.

Black: Bruce, thank you so much for your time. For Morningstar I'm Holly Black.

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Holly Black  is Senior Editor,


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