MURRAY INTERNATIONAL TRUST PLC (the “Company”)
Legal Entity Identifier (LEI): 549300BP77JO5Y8LM553
HALF-YEARLY REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2023
The Directors of Murray International Trust PLC report the unaudited results of the Company for the six months ended 30 June 2023.
Performance Highlights
| Net asset value total returnA | Share price total returnA | |||
| Six months ended 30 June 2023 | Six months ended 30 June 2023 | |||
| +2.2% | -2.5% | |||
| Year ended 31 December 2022 | +8.8% | Year ended 31 December 2022 | +20.6% | |
| Reference index total returnB | (Discount)/premium to net asset valueA | |||
| Six months ended 30 June 2023 | As at 30 June 2023 | |||
| +7.9% | -1.5% | |||
| Year ended 31 December 2022 | -7.3% | As at 31 December 2022 | +3.1% | |
| Ongoing charges ratioA | Net gearingA | |||
| As at 30 June 2023 | As at 30 June 2023 | |||
| 0.52% | 8.3% | |||
| As at 31 December 2022 | 0.52% | As at 31 December 2022 | 11.2% | |
| A Alternative Performance Measure (see below) | ||||
| B FTSE All World TR Index. | ||||
Financial Calendar and Highlights
| Payment dates of quarterly dividends | 16 August 2023 17 November 2023 16 February 2024 17 May 2024 |
| Financial year end | 31 December |
| Expected announcement of results for year ending 31 December 2023 | March 2024 |
| Annual General Meeting (London) | 19 April 2024 |
Financial Highlights
| 30 June 2023 | 31 December 2022 | % change | |
| Total assets less current liabilities (before deducting prior charges) | £1,754.7m | £1,816.6m | -3.4 |
| Net assets | £1,614.8m | £1,616.8m | -0.1 |
| Share price per Ordinary share (mid market)A | 254.0p | 266.8p | -4.8B |
| Net Asset Value per Ordinary shareA | 257.9p | 258.7p | -0.3B |
| (Discount)/premium to Net Asset Value per Ordinary shareC | -1.5% | 3.1% | |
| Net gearingC | 8.3% | 11.2% | |
| Ongoing charges ratioC | 0.52% | 0.52% | |
| A Comparative figures for the year ended 31 December 2022 have been restated to reflect the sub-division of each existing Ordinary share of 25p into five Ordinary shares of 5p each on 24 April 2023. | |||
| B The movement relates to capital only and does not take account of the reinvestment of dividends. | |||
| C Considered to be an Alternative Performance Measure. Further details can be found below. | |||
Interim Board Report – Chairman’s Statement
Background
During this review period, there was little respite from the inflationary concerns and interest rate hikes that have dominated the financial backdrop for over eighteen months now. Despite energy and commodity prices significantly declining from this time last year, most consumer-driven economies in the Developed World continue to be squeezed by higher food prices, rising mortgage rates and dwindling disposable incomes. With the impact of higher bond yields translating into higher debt servicing costs, genuine fears over future asset quality are beginning to emerge, with all areas of bank lending attracting scrutiny. For financial markets, the divergence between the performance of bonds and equities proved extremely pronounced: the former constantly fretting over wage inflation and the erosion of real incomes; and the latter apparently ignoring the reality of rising recession risks and downward revisions to growth and corporate profitability. For individual investors and savers, the holy grail remains capital appreciation and real returns; the quandary – where to find them.
Performance and Dividends
The net asset value (NAV) total return, with net income reinvested, for the six months to 30 June 2023 was 2.2% compared with 7.9% for the Company’s Reference Index (the FTSE All World TR Index). Over the six-month period, the share price total return was -2.5%, reflecting a move to trading at a small discount to the NAV. The Manager’s Review contains more information about both the drivers of performance in the period and the portfolio changes effected.
Two interim dividends of 2.4p (2022: 2.4p – restated for share sub-division referred to below) have been declared in respect of the six months to 30 June 2023. The first interim dividend is payable on 16 August 2023 to shareholders on the register on 7 July 2023 and the second interim dividend will be paid on 17 November 2023 to shareholders on the register on 6 October 2023.
As stated previously, the Board intends to maintain a progressive dividend policy given the Company’s investment objective. This means that, in some years, revenue will be added to reserves while, in others, revenue may be taken from reserves to supplement earned revenue for that year to pay the annual dividend. Shareholders should not be surprised or concerned by either outcome as, over time, the Company will aim to pay out what the underlying portfolio earns. The Board currently intends in 2023 at least to match the dividend payout of 11.2p (56.0p per share restated for share sub-division referred to below) in 2022. At the end of June 2023 the Balance Sheet revenue reserves amounted to £70.5m.
Manager Succession
As many Shareholders will be aware, Bruce Stout has been the Company’s lead investment manager since 2004. During that time, he has been assisted by Martin Connaghan and Samantha Fitzpatrick. In fact, both have worked with Bruce since 2001, when they joined what was then Aberdeen Asset Management from Murray Johnstone. Over recent years, Martin and Samantha’s input into the management of the portfolio, and the Company itself, has increased and many of you may have met or heard from them at meetings or presentations, including AGMs and online webinars. Bruce has now advised us of his intention to retire at the end of June 2024. I am delighted to announce that Martin and Samantha will take on co-managerial responsibility for the Company’s investments alongside Bruce with immediate effect, thereby ensuring the smoothest of handovers and no change in abrdn’s approach to the investment management of the Company going forward. It is premature of me to thank Bruce for all his efforts on behalf of the Company and I am sure that many of you will have the opportunity to do so personally in the run-up to his departure in just under a year’s time.
Management of Premium and Discount
The Board aims to ensure that neither an excessive discount nor premium to NAV arises. Subject to existing shareholder permissions (given at the last AGM) and prevailing market conditions at the time, 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 the interests of all shareholders.
During the period under review, the Company’s share price has traded at a level that has been close to the NAV per share and no shares have been purchased for Treasury. However, at times the share price has traded at a premium to the NAV per share and, as a result, 1,050,000 shares have been sold from Treasury during the period raising £2.8m for the Company. Subsequent to the period end 536,157 shares have been purchased for Treasury at a discount to NAV.
At the latest practicable date, the NAV (excluding income) per share was 249.47p and the share price was 244.5p equating to a discount of 2.0% per Ordinary share.
Completion of Share Sub-division
On 24 April 2023, the Company announced the completion of the sub-division of the Ordinary shares of 25 pence each into five new Ordinary shares of 5 pence each (“New Ordinary Shares”) which had been approved by shareholders at the Company’s Annual General Meeting held on 21 April 2023. The New Ordinary Shares are listed and trading on the London Stock Exchange under a new ISIN and SEDOL, as follows:
• New ISIN: GB00BQZCCB79
• New SEDOL: BQZCCB7
The ticker for the New Ordinary Shares remains the same (MYI).
Migration of abrdn Savings Plans to interactive investor (“ii”)
The Company’s Manager, abrdn, has been reviewing its current service provider for its investment trust share plans (abrdn Savings Plan, Children’s Plan and ISA). In May 2022, abrdn completed the acquisition of ii, the UK’s second largest, award-winning investment platform for self-directing private investors. Having considered the various options, abrdn has concluded its review and has decided to migrate its share plan customers to ii in December 2023, given the strength of the ii offering, its understanding of and enthusiasm for investment trusts and the strong representation of investment trusts in its customer portfolios. Plan participants who have queries in respect of the migration should raise them directly with abrdn’s investor services team by email at inv.trusts@abrdn.com or by telephone on 0808 500 4000 or 00 44 1268 448 222 (Monday to Friday 9am to 5pm – call charges will vary).
Gearing
In May 2023, the Company repaid its maturing £60 million 5 year fixed rate loan with The Royal Bank of Scotland International Limited, London Branch. Following the repayment of this loan, the Company’s borrowings are £140m which represents a net gearing level of 8.3% based on the Company’s NAV at 30 June 2023 (2022: 11.2%).
The Board considered options to replace this loan but acceptable commercial terms were not available.
Ongoing Charges Ratio (“OCR”)
During the review period, the OCR remained flat, ending the six months at 0.52% (31 December 2022: 0.52%). The Board remains focused on controlling costs and delivering value to shareholders. A full breakdown of the OCR calculation is provided below.
Directorate
As part of the Board’s long-term succession planning, the Directors welcomed Mr Gregory Eckersley to the Board as an independent non-executive Director on 1 May 2023. Greg is an experienced equity investor with a professional executive career in a mix of leadership and asset management roles. Having begun his investment career at Cigna International Investment Limited, he gained international experience at Draycott Partners, Alliance Capital and Alliance Bernstein, managing and overseeing teams investing in emerging market and global portfolios and, until 2019, was the global head of internal equities at the Abu Dhabi Investment Authority.
In addition, the Company has announced the appointment of Ms Wendy Colquhoun as an independent non-executive Director with effect from 1 September 2023. Wendy is a qualified solicitor and was, until May 2020, a partner at international law firm CMS Cameron McKenna Nabarro Olswang LLP. She has advised investment trust boards for over 25 years on advisory and transactional matters and has a thorough understanding of investment trusts and the regulatory and other challenges they face. She is a non-executive director of Capital Gearing Trust p.l.c and Schroder UK Mid Cap Fund plc, and chair of Henderson Opportunities Trust plc.
As previously announced, I shall be retiring from the Board with effect from 31 December 2023 at which point Ms Virginia Holmes has agreed to chair the Company.
Outlook
Despite an increasingly hostile backdrop of higher interest rates and rising recession risk, our Manager’s focus continues to be on quality and diversification; seeking to deliver the Company’s investment objective through portfolio holdings with robust corporate profitability, strong free cash flows, low debt-servicing costs, under-leveraged balance sheets and affordable dividend distributions and a focus on capital intensive businesses that offer relative protection from wage hikes which are run by experienced managements that have negotiated difficult operating environments in the past. Our Manager avoids discretionary spending businesses exposed to increasingly financially stretched consumers. This disciplined and focused approach should enhance longer-term prospects. The environment of deteriorating credit and asset quality plus increasing restrictions on debt funding is now a fact of investment life. Against such a backdrop, great caution is warranted and is being exercised.
Shareholders’ views are very important to the Board and I encourage you to email me if you have feedback on the Company at DavidHardie.Chairman@abrdn.com.
David Hardie
Chairman
10 August 2023
Interim Board Report – Manager’s Review
Background
Continuation of the sharpest reactionary monetary tightening witnessed in living memory featured prominently throughout the first six months of 2023. As interest rates were relentlessly raised and the cost of borrowing soared, most of the debt-dependent Developed World teetered on the brink of recession. Yet any objective assessment of what has actually been achieved by such draconian policy action remains arguably subjective to say the least. Identifiable inflationary pressures associated with commodity price inflation have “behaved” pretty much in textbook fashion. With oil and gas prices down over 50% from twelve months ago, most hard commodity prices have succumbed to the free-market equilibrium associated with lower demand and expanding supply. Yet inflation in many countries persists. For those familiar with the economic vandalism inherent in Central Banks printing money and the consequences of such irresponsible pandering to financial markets, this will come as no surprise. After all, inflation is an “always and everywhere” monetary phenomenon. Until such time that bond markets can accurately price the reality of debt servicing obligations, deteriorating creditworthiness of sovereign states, future interest rate volatility and political incompetence, then inflationary pressures are likely to persist. Against this backdrop, increasingly ineffectual policymakers are coming under intense political pressure to “do more” despite the reality of being “unable to do much”, thereby prolonging the economic uncertainty and negative consequences that unconstrained inflation has on currencies, wealth and prosperity. For individual savers, the reality of negative real returns has increasingly become the all-consuming focus of investment strategies.
North America
The epicentre of the gigantic monetary overhang that presents so many insurmountable problems for orthodox monetary policy throughout the so-called Developed World remains firmly rooted in the United States. With credit quality already creaking under the weight of higher interest rates, economic fundamentals in North America continued to deteriorate. The credit boom of the past extended business cycle stayed well on course to become the credit bust of the current post-bubble cycle. A significant “run” on regional bank deposits early in the year was dismissed by the eternally optimistic consensus as mere localised lending dislocations. In truth, where the most extensive and problematic financial skeletons lie after a decade of decadent misallocation of cheap money is as yet unknown. Undoubtably this issue of asset quality will remain key for bond and equity markets as the year progresses, yet year-to-date such realities proved insufficient to dampen “animal spirits” in the capitalism capital of the western world. The latest market “distraction” to exercise the minds and buying behaviour of an equity market devoid of fundamental support from bond yields, interest rates or policy rhetoric, was a wave of exuberant enthusiasm towards the perceived exponential growth possibilities for Artificial Intelligence networks. Embellished by such sentiment, technology holdings in Broadcom and Cisco Systems were standout performers but, elsewhere, portfolio returns proved more modest as the diversified and defensive emphasis for delivering solid earnings and dividends went largely unrewarded. Stronger performing sectors from last year, such as Healthcare, Energy and Basic Materials, fell out of favour given the prevailing, short-term sentiment. High quality Healthcare holdings, such as AbbVie, Bristol Myers and Johnson & Johnson, drifted lower and asset rich Canadian pipeline operators TC Energy and Enbridge delivered dividend growth but little else. There were no new portfolio investments nor divestments in the region over the period in what proved a particularly concerning six months of unjustified equity price inflation.
Europe and the UK
Clear evidence of weakening credit growth and tighter liquidity conditions prevailed throughout Europe over the first six months of the year. Loss of growth momentum inevitably proved more pronounced in countries exposed to the largest debt burdens but, in general, most of the continent witnessed an easing of inflationary pressures. Headline Euro Zone inflation, which peaked at low double digits towards year end 2022, was trending around mid-single digits by period end with further improvement possible over the coming months. Conversely, whilst growth continued to decelerate in the UK, stubbornly high food and services inflation persisted. Combined with rising wages and blatant corporate profiteering, the pressure for further monetary tightening escalated against a backdrop of an already punitive cost of living crisis. The beleaguered Bank of England remained impotent to exert much influence on a toxic cocktail of macroeconomic incompatibilities that threatens to destabilise a financial system increasingly dependent on foreign capital for living beyond its means. With lagging mortgage refinancing about to bite, the most relevant question now pertaining to the UK economy is for how long and how deep the inevitable economic recession will be.
Performance from European portfolio holdings was exceptionally strong over the period, with total exposure up +8.6%. Diversification continued to deliver superior capital and income performance, with recently established BE Semiconductor the standout performer. Well above average positive total returns were also forthcoming from Industrials such as Atlas Copco and Siemens, the Utility company Enel, French Pharmaceutical and Consumer Staples companies Sanofi and Danone, plus Norwegian Telecoms provider Telenor. Negative returns were few and far between within a European portfolio context, with only Roche, TotalEnergies and Danish Insurance company Tryg deleting any value. The outright sale of Swedish financial Nordea was the only meaningful transaction in the region over the period. Whilst UK holdings struggled to contribute much to performance, the portfolio’s historically low weighting in UK equities (primarily due to more interesting opportunities elsewhere in the world) resulted in only a marginal constraint on returns at the overall aggregate level.
Asia and Latin America
Nowhere were the increasingly divergent trends in global economic growth, interest rates and inflation more pronounced than in Emerging Markets. Well anchored in fundamental economic orthodoxy, the rate of price increases throughout most of Asia and Latin America continued to slow, vindication of prudent, proactive policy responses enacted long before inflation was allowed to develop roots. With inflation “behaving” much better in the Developing World compared to the Developed World, companies operating in these regions were less restricted by interest rate uncertainty. Bond yields remained higher than necessary throughout but, with the next move in interest rates likely to be lower, there was rational scope for optimism. Widespread global euphoria towards Artificial Intelligence was reflected in very strong performance from Asian portfolio holdings in Taiwan Semiconductor, GlobalWafers and Samsung Electronics. Elsewhere in the region, Taiwan Industrial Hon Hai provided strong total returns, as did telecommunication service providers Telekom Indonesia and Taiwan Mobile. The only noticeable area of weakness within Asia exposures continued to be the Chinese holdings, where ongoing economic weakness, policy inertia and geo-political concerns kept most international investors sceptical on near term prospects. The outright sale of Lotus Retail in Thailand was the only notable transaction in Asia over the period.
Exposure to Latin America remained constant at around 13% of gross assets in six high quality companies, all of which delivered robust earnings and dividend growth over the period although this was not uniformly recognised by the markets. The total aggregate portfolio return of 6.8% was derived from strong positive contributions from Grupo Asur and Kimberly Clark in Mexico, and very strong performance from Bradesco and Telefonica in Brazil. Strength in Grupo Asur prompted periodic profit taking from the large position. Exceptionally strong contributors from previous years, lithium producer Sociedad Quimica Y Minera in Chile and iron ore giant Vale in Brazil both declined against a global backdrop of weaker commodity prices but the long-term outlook for these businesses, and indeed the region as a whole, remains very attractive indeed.
Outlook
Cracking a nut with a sledgehammer seldom delivers the desired results. The shell usually breaks but the kernel invariably gets pulverised in the process. Faced with stubbornly high inflation in the Developed World, discredited and detached Central Banks continue to follow a similar Pavlovian practice which, in their world, involves hiking interest rates until demand subsides. This is theoretically logical if it is assumed that excessive consumer demand is the root of all price inflation. However, it is woefully misguided if rigidity of labour markets, deglobalisation, rising global protectionism or “doing whatever it takes” through printing money are structurally influencing the overall cost of living. Against such a backdrop, religiously following such a one-dimensional dogma appears at best foolhardy, at worst downright destructive.
In the meantime, the lagged effects of the monetary tightening implemented so far are beginning to emerge. For the G7 nations, drowning in a deluge of self-inflicted debt dynamics, servicing existing borrowings at higher interest rates has become the daily priority. The tougher and more politically unpopular conditions become for the indebted world, the greater the pressure to “bend” will mount on policymakers accustomed and conditioned to “choosing” the popular way out. However, the days of bailing out all and sundry through the public purse and supporting the ill-disciplined and indebted at the expense of the responsible saver are over. The re-emergence of inflation, tighter liquidity and acute competition for available funds has seen to that. For the Developed World’s Monetary Authorities, what they might want to do versus what they can actually do this time around appears profoundly different.
Against such a backdrop great caution is warranted. Investment focus will continue to emphasise quality companies, maintain a diversified portfolio of both income and growth opportunities, and seek to avoid sectors, businesses and geographical areas where both secular and cyclical headwinds are deemed to be most hostile. The medium-term outlook poses numerous unfamiliar challenges for policymakers, politicians and investors alike, with uncertainty likely to be a constant companion. For many, the process of getting comfortable with feeling uncomfortable has only just begun.
Bruce Stout
Senior Investment Director
Martin Connaghan
Investment Director
Samantha Fitzpatrick
Investment Director
abrdn Investments Limited
10 August 2023