Dividend pledge as £1.5bn Murray International Trust avoids volatile UK equities
The £1.5 billion Murray International Trust, managed by Aberdeen Standard Investments, is giving UK equities a wide berth amid weak dividend prospects and “fraught” Brexit negotiations.
Unveiling first-half results, fund manager Bruce Stout said the severity of dividend cuts from companies tackling “evaporating” revenues and profits had been the deepest on record.
Murray International has about 55 per cent of its capital in emerging market equities, compared with just 7 per cent or so in UK equities.
Stout said: “Markets are likely to remain volatile for the duration of the year. Expectations are for every major economy to contract, contending with slower growth, record low bond yields and companies struggling to achieve meaningful earnings growth, in the short term.
“The exit from lockdown will not be smooth and will be subject to periods of reversal.”
On the UK, he noted: “Low exposure to the UK proved insufficient to protect overall capital and income from this ‘region’.
“Emerging from lockdown towards the end of June, facing 2020 OECD forecasts of double-digit GDP contraction, the market has been brutally impacted by significant capital losses and the largest dividend declines of any global stock market.
“Ongoing uncertainty over future profit growth and dividend prospects as well as fraught post-Brexit trade negotiations provide a compelling case to remain cautious of the UK.”
The trust’s net asset value total return, with net income reinvested, for the six months to 30 June fell by 10.7 per cent compared with a fall of 4.7 per cent for its reference index.
Over the six-month period, the share price total return fell by 18.7 per cent, reflecting a move from trading at a premium of 5.9 per cent to trading at a discount of 3.7 per cent.
Despite this, the board intends to maintain a “progressive dividend policy” and at least match the payout of 53.5p per share made in 2019. The trust has increased its dividend for each of the past 15 years.
Stout added: “Portfolio diversification has increasingly proved an unpopular and underwhelming strategy in an investment world with a seemingly insatiable appetite for the ‘Internet of Things’.
“However, as pandemic fears ease and the reality of redemptive policy actions become quantifiable, the risk/reward between portfolio concentration and portfolio diversification appears poised to rotate favourably towards the latter.”
Chariman Kevin Carter said: “Current widespread economic contractions will likely produce credit defaults, bond rating downgrades, equity capital raisings, on-going profit warnings and dividend cuts.
“The manager’s investment approach seeks companies which offer stable long-term earnings and dividend growth prospects in combination with management teams focused on shareholders’ interests.”
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