Will this diversified fund recover when the tech stock obsession starts to wane?
The manager of Murray International thinks the market has become starkly polarised and is poised to regain its balance
A “NOBODY’S fault recession” is the rather neat description used for the current slump in the interim report published a week ago by one of our newer holdings, Murray International investment trust.
The portfolio’s manager, Bruce Stout of Aberdeen Standard Investments, said the fact that the recession could be blamed on the pandemic had enabled the authorities to “unleash a flood of liquidity into financial markets” – with “significant implications for the performance of stocks and bonds”.
Much of this money, he said, had found its way into technology stocks, which were “deemed to be beneficiaries of social isolation”, while other parts of the stock market were shunned. One of the consequences was that diversified portfolios
such as his own had proved unpopular “in an investment world with a seemingly insatiable appetite for the internet of things”. This is apparent from a glance at a graph of Murray International’s share price, which has been roughly flat since early April after an initial recovery from the trough of the coronavirus crash petered out. Portfolios that contain plenty of technology stocks have fared much better: the share price graph of Scottish Mortgage, for example, has risen steeply and more or less continuously since the market bottomed out.
Mr Stout suspected that the market would not remain in such a polarised state for long, however. “As pandemic fears ease, the risk-reward balance between portfolio concentration and portfolio diversification appears poised to rotate favourably towards the latter,” he concluded. We, as holders of his trust, must hope so, although our primary interest is of course in the income it pays. On this front we can be content.
The trust has declared two interim dividends of 12p each for the six months to June 30. The first was paid a week ago, while the second is due to be paid on Nov 19. The chairman,
Kevin Carter, said the board intended to “maintain a progressive dividend policy” and would use its reserves to do so if necessary.
His explanation chimes with Questor’s views on investment trusts’ reserves, as expressed in one of our recent WhatsApp audio updates, and is worth reporting. “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,” Mr Carter said.
“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.”
He added that the board “currently intends in 2020 at least to match the dividend payout of 53.5p per share in 2019”, which he expected to entail some use of the reserves “built up over prior years for occasions such as the current crisis”.
At the end of June 2020 the reserves amounted to £69.6m. For comparison, the cash spent on divis paid in the first half (as opposed to those declared) came to £38.2m.
It’s worth noting that much of the poor performance of the shares so far this year is down to a widening in the discount. We will hold.
Update: Sirius Real Estate
This trust, which owns commercial property in Germany, issued an update last week on its rent collection during the pandemic – a statistic readers will be getting very used to seeing in coverage of our property-heavy portfolio.
At the end of last month the fund had collected 95.9pc of the rent and service charges due for the period between April and June, compared with 98.2pc last year. It said most of the uncollected debt related to 41 tenants out of a total of about 5,000.
It said that between April and July it had received 6.7pc more inquiries from prospective tenants than in the same period last year. Hold.