A Contemptuous Bruce Stout


It is said the most valuable currency in the world is trust. Earned through honesty, integrity and truth, where it exists, the possibilities are endless. Inspiring confidence for individuals, business and government, trust allows financial activity to flourish. Without it, there can be no commercial exchange, no international trade, no global investment and no social democracy. In a world increasingly frustrated by unfulfilled promises and austerity fatigue, the single most influential global development over the past twelve months was the dramatic devaluation of trust. As Central Banks, the political elite, academia and the media were seen increasingly to be out of touch with public opinion and detached from the disconnect between policy and reality, respect for them tangibly eroded.

The political cost associated with such widespread trust debasement proved deep and far-reaching. Anti-establishment sentiment escalated on a wave of nationalistic populism, securing power and elected representation seemingly against the odds and often against public opinion. In a global political climate where it became prudent to expect the unexpected, leadership change, policy change and government change swept across the landscape. Credibility loss was most pronounced towards Central Bank policymakers. Four consecutive years of grossly inaccurate economic forecasting condemned the Federal Reserve in the United States to making increasingly hollow-sounding policy predictions. Domestic interest rates were nudged up slightly, but widespread scepticism prevailed. Similar doubt and indecision accompanied policy directives in the UK. The Bank of England’s fragile veneer of respectability was shattered following Britain’s vote to leave the European Union. Hostage to unsustainable fiscal and current account deficits, the Brexit Referendum result delivered the long expected devaluation of Sterling as international capital took fright. In the ensuing temporary panic, policy discipline was abandoned. Displaying infinitely more consistency in futile policy implementation, the European Central Bank and the Bank of Japan kept on printing banknotes. Creating farce and fallacy whilst simultaneously destroying hard earned savings, such actions were beyond contempt. Yet oblivious to public derision, global Central Bank policymakers ploughed on regardless, in denial of the painfully obvious - issuing more debt to solve a debt crisis simply doesn’t work.

These are not my words but those of the belligerently outspoken Bruce Stout in his withering introduction to the recently released Annual Reports and Accounts of the globalist investment trust Murray International (MYI).

While the trust’s chairman, Kevin Carter, is apparently overjoyed to announce to shareholders a 12 months share price and NAV total return of 50.5% and 40.3% respectively that has resulted in a NAV benchmarked outperformance of some 15%. Bruce Stout’s accompanying remarks imply that such a dramatic improvement in the fortunes of the trust has had very little to do with his skills as a fund manager. Rather they’ve been brought about by the printing presses of Central Bankers together with global currency shifts that have been to MYI’s advantage. Indeed, Bruce Stout makes the point that the only currency the portfolio is exposed to that has remained unchanged relative to UK Sterling over the past year has been the Mexican Peso. Nevertheless, both board and manager remain opposed to entering into currency hedging arrangements on the grounds they add an extra layer of complexity, and in some currency cases are too expensive to deploy.

MYI’s portfolio asset split as of the report was:
2016: Global Equities 82.7% (47 holdings) / Global Fixed Interest 16.4% (22 holdings)
2015: Global Equities 86.2% / Global Fixed Interest 12.9%
Noticeably trimmed back on Europe (Ex UK) and lifted exposure to Latin America and Asia Pacific (Ex Japan) fixed interest.

While the gearing effect of bank borrowings fell 5% from 17.4% (2015) to 12.5% (2016).
Looking at what it’s costing MYI to borrow the money – it’s cheap. I wish I could borrow at such rates.

Annual dividend is up by 2.2% which is a few ticks better than the corresponding 12-month RPI.
Revenue reserves up to 1.08 years from previous position of 0.98 years.

I also noted with interest the Chairman’s comments concerning the proposed merger of Aberdeen and Standard Life that went as follows:
“The Board notes the recent announcement of the proposed recommended merger between the Company’s Manager, Aberdeen Asset Management PLC, and Standard Life plc. It is still early days in this transaction which is subject to shareholders’ and regulatory approvals. The Board has sought and obtained assurances that the existing investment management and client servicing team from Aberdeen will remain in place and focused on the Company’s affairs, and we will be vigilant to ensure this remains the case.”

For those of us with long investment trust memories; there’s always been something of an at arm’s length relationship between Aberdeen and the two Murray ITs of International (MYI) and Income (MUT), when in 2000, as part the Murray Johnstone stable, the pair were required to move as a result of Aberdeen’s takeover of Murray Johnstone. I can recall a year or so after the move that both trusts declined moves to allow the inclusion of the prefix ‘Aberdeen’ in front of ‘Murray’ for marketing purposes. I understand that informal comments made at the time were along the lines of; we are two Murray ITs with a pedigree stretching back to 1907 and 1923 while you Aberdeen only first saw the light of day in 1983. To the best of my knowledge, I’ve never seen anybody previously connected with Aberdeen on the board of directors of Murray International and Income ITs.

Putting that to one side, there’s nothing in the report that will discourage me from adding to my Murray International holding when the share price cools down a bit.

While the full Annual Report and Accounts for the period ending 31st December 2016 have not as yet been uploaded to trust’s website. A text only copy of the report can be viewed online at the FE Investigate site at …