Sharesify Podcast with Samantha Fitzpatrick of Murray International Trust

In our latest Podcast special, Steven Frazer and James Crux welcome Samantha Fitzpatrick, co-manager of investment trust Murray International (LON:MYI). This global equity income fund offers an above average dividend yield. The trust seeks to generate long term growth in dividends and capital ahead of inflation.

Murray International has prized AIC dividend hero status, having delivered more than 2 decades of uninterrupted dividend growth. The fund is also the best one-year share price total return performer in the AIC Global Equity Income sector.

Murray International Trust

Samantha explains why she has confidence in the sustainability and growth of the portfolio’s underlying dividends, even if the global economy slows. Samantha discusses how she balances the opportunity in AI and technology with her focus on income and valuation discipline.

She also outlines why the managers have dialled down the trust’s emerging markets exposure. Counter-intuitively, the best opportunities they have found this year have been in the US.

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Disclaimer: This content is for information only and is not investment advice. Always do your own research before investing. 

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Transcript

SPEAKER_00 0:07

Hello and welcome to a very special episode of the Share to Five Podcast. Today we're delighted to be joined by Samantha Fitzpatrick, co-manager of investment trust for Murray International. Now, this Global Equity Income Fund offers an above average dividend yield and seeks to generate long-term growth in dividends and capital ahead of inflation. It also has prized AIC dividend hero status, having delivered more than two decades of uninterrupted dividend growth. Samantha, thanks for your time today.

SPEAKER_02 0:32

My pleasure. Thanks for having me.

SPEAKER_00 0:34

Yes, good.

SPEAKER_01 0:34

Welcome. Yes, welcome, Samantha. And let's crack on. I mean, Murray has really built this brilliant record for outstripping its benchmark and many peers. I just wonder what kind of companies, what kind of dynamics do you look for in companies in order to be attracted to long-term sustainable growth, but also with that core dividend attraction as well.

SPEAKER_02 0:55

Yeah, it's really, really helpful to have such a clear investment objective as managers. So you're right, what we're trying to deliver is a really healthy, attractive dividend yield, and also grow that dividend and grow the capital ahead of inflation over time. So that naturally takes you towards certain types of companies, and having the global remit has been extremely powerful over the years. So we can flex that, we can absolutely go where we think the best opportunities are globally, and in combination, that's led to very strong results over time. But our hands are very much tied in a good way from delivering that investment objective.

SPEAKER_01 1:35

So you can move the trust. Um, I mean, but valuations in the US, for example, have reached a fuller level than they are in, say, Asia, in Europe, in the UK. So you can adapt the trust without ignoring high-quality businesses as well, but you can move ratings around.

SPEAKER_02 1:50

Exactly. And we do have a team of people all over the world. We have over a hundred analysts who are visiting companies in all different parts of the globe. So we have 23 different countries represented at the moment by country of listing. So that breadth and depth has been very valuable over time.

SPEAKER_00 2:08

Right. And so, how confident are you in the sustainability of the portfolio dividends, maybe if the economy slows globally?

SPEAKER_02 2:15

Yeah, and that's something that we are asked quite often. And what we have found over the years, even during COVID times where there was huge uncertainty and lots of companies were cutting dividends, what we found is that it didn't happen everywhere at the same time. So having that flexibility has been fantastic. And looking at the underlying portfolio dynamics right now, for example, uh, we are invested in about 55 companies. We have had 26 full-year dividend declarations at the half-year point. And out of those 26 companies, we have had 24 dividends increased. We had two held flat. So it's actually been pretty strong in terms of underlying dynamics. And the growth rate of the dividends of the underlying businesses we invest in is also pretty decent. So about 8%, 9% annualised dividend growth from those businesses. And the great thing about the structure of investment trusts is that we can dip into reserves if need be. So we want to cover the dividend every year. That's certainly the goal from the income generated from the underlying holdings. But if there is a year that we don't quite achieve that, we have over one year's worth of income sitting in reserves. You know, about 80 odd million is sitting in reserves that we can use to supplement the dividend in any particular year if we're really coming across a difficult environment. So that again, that smoothing mechanism with investment trusts has been very, very good for us as managers and very much appreciated by our shareholders over time.

SPEAKER_01 3:51

Yeah, I mean something that's very unique to the investment trust world. You don't have that ability in the fund world, and and absolutely uh the shareholders really do uh come to appreciate that. I do wonder, I mean, we we've all seen the rise of technology uh the last decade, um, and particularly in the US, now with AI really driving um growth in particular. I just wonder how you and and your fellow managers balance the evident opportunity in the AI and technology space with your ethos around value and dividends.

SPEAKER_02 4:21

Yeah, it's it's been very much an evolving story, this one. So we have around about 10% of the trust invested in a handful of technology companies, some of which are very much geared to the AI themes. So we do have Samsung, we have TSMC, we have Broadcom.

SPEAKER_01 4:38

Cisco as well, I believe.

SPEAKER_02 4:39

Yes, Cisco as well. So at this point in time, though, those weights are small. So at one time, you know, going back a few years ago, Broadcom was one of our biggest positions, so was TSMC. These were both 5% positions in the trust. Because at that time they were, as well as offering some capital upside, delivering quite decent income, that's no longer the case. So these companies that we mentioned, they are real very much at the lower end of what we can stomach in terms of the income generation from the companies, about 1%. Um so that's it's tough in a way, but it actually just means that you have to get back to focus on what this trust is meant to be. It's not meant to be a US technology fund, people don't buy it for that reason. And in fact, they like it because it's just not the same as lots of other funds out there. So it's not that you have to close those opportunities out completely, but you have to be very mindful of the amount of the trust that you're going to allocate there. Um, and and that's absolutely fine. You know, that 10% is low even for our standards. At one time, tech was a good bit higher. Yes. Um, 10% to us feels about right. Not that we try to come up with figures and then pick the stocks around that. But I was actually just checking earlier today, and it's remarkable just how dominant that one particular category is in global markets, you know.

SPEAKER_01 5:54

Yeah, absolutely.

SPEAKER_02 5:57

64% in a standard global index in the US. So I hadn't actually looked for a while because we're not measured against these things, but yeah, um it's become just even more extreme. Um, so again, I don't mind at all offering something different to people out there.

SPEAKER_01 6:10

I think it's really valuable to make sure um potential investors know what you're not doing as well as what you are doing. Um, that's equally valuable.

SPEAKER_02 6:19

Exactly. Yeah, it's quite a clear message and it really hits home. I think it lands well. It's not that you're dissing these companies because they're very impressive, um, but you don't necessarily have to be in them all, you know, to offer something that's that's attractive to people.

SPEAKER_00 6:34

Sure, right. And you and Martin have a very sort of you know a focus on value, don't you? So I just wonder where you're seeing perhaps the most compelling opportunities geographically. Perhaps EMs are they becoming more interesting to you?

SPEAKER_02 6:45

Um we've actually brought EM exposure down a little bit actually over time. And again, it's not because we're taking a view in the category, it's because um actually we've sold and let some um bonds expire or let them mature that we had held, you know, gone back 10 years ago, we had quite a significant allocation in that category in emerging market debt because the yields on offer were very attractive, but that's naturally come down. So the trust had around 20% in emerging markets at the moment across a whole range of different countries. So there is Latin American exposure, there's a little bit of China in there, Taiwan, Korea, obviously, not necessarily emerging market companies necessarily. Um but I think we do tend to keep an open mind. And actually, the stocks we've been adding this year have been US names, so maybe a bit counterintuitive, but there is a lot of good opportunities out with US tech as well that we think are still trading at pretty decent valuations, helping to deliver that income, and very, very well managed companies. So it's just about trying to, as far as we're concerned, take the labels off things and go where you feel the best opportunities are globally and having a real mix of companies at all times. So, yeah, that interestingly, that emerging market weight has been coming down, although we still think there's absolutely good companies out there.

SPEAKER_01 8:06

Yeah. I think that that neatly brings us on actually to a follow-up question. I mean, given the portfolio shape at the moment, I mean, where are you seeing um well where do you think that the market is underestimating the either geographically sectoral-wise, theme-wise?

SPEAKER_02 8:21

Yeah, basically anything other than US Tech is just become so, so dominant, you know, in every every global index, most global equity funds, even all the headlines, you know, it's very much about what the Magster did yesterday. So it's just about broadening your horizons. Um, and I just think you can think you're well diversified, but please do just look at the fact sheets of the charts that you own or the spons that you own to see what the top holdings are. Because, you know, as I say, even in the US market, there's lots and lots of good companies out there that just don't tick that tech box or that particular type of tech necessarily. Um and again, it's not that I'm being overly negative on them, but but I've just said to people please just look and make sure you're as diversified as you want to be.

SPEAKER_00 9:10

Right, and just just why should an investor choose an actively manage global income trusts rather than have a low-cost ETF? And perhaps what role does your trust play in a diversified portfolio?

SPEAKER_02 9:20

Yeah, it's that point that is different, and it's different for a good reason. Um so in terms of the concentration, the top 10 holdings of a standard global equity ETF, if it's following like MSCI world or something, uh top 10 is 25% of that product. So you might think that you're investing in thousands of companies that has global exposure, but that's really concentrated. So even compared to that, Murray International with you know around 55 holdings, has just a much better spread of businesses, I would argue. And having that income component and having the desire to cover the income from underlying income just gives you a very different mix, a different feel. It tends to be more resilient in down markets over time. We've we've seen that. So perhaps not keeping up and blowing the lights out when things are going extremely well, but there is value to downside protection, and again, we hear that from your shareholders, it's something that isn't necessarily easy to source. So just that type of exposure is very valuable, I think. Um, and and I'm not saying by all means like put all your funds into this, we don't want one stock. But in order to try and have a blend, it certainly gives you that ability if that's where you want to go.

SPEAKER_01 10:37

Yeah, well, we're running short time, Samantha. But what just one final uh question? Um, I I find it curious that you benchmark yourself against a high yield uh benchmark. Um now, given uh I I know you you you want to keep your yield of the trust at a certain level, but given the makeup of the of some of the portfolio holdings, I just wonder is that why do you think that's a good benchmark for you? Do you not think that maybe a global um growth and income benchmark would be more appropriate?

SPEAKER_02 11:05

Yeah, we switched last year actually. So one year ago, um the benchmark changed from a standard um FTSE All World into the high yield option, and we did look at a variety of different measures at that point in time, and we did feel that having this high yield benchmark does give you that ability to manoeuvre if you're going to compare it against that, because even that high yield benchmark has a dividend yield of roughly about 3.4%, we are having a higher yield than that. So even compared to that, we're still a bit more value, still a bit more high income. Um so it's not that our hands are being tied, it's not that we have to own stocks that are constituents of that benchmark, we can go off piece, you know, things like North Bomb, TSNC, Samsung, they're not UX constituents ability to manoeuvre. But I think in terms of comparing us to something that's just more similar, that was a good move. It was a sensible move by the board. That's uh June last year. And we're finding now again we can talk about reality performance better now than benchmarks. So it's all been very helpful from that perspective.

SPEAKER_01 12:13

That's a really interesting viewpoint. Thank you very much, Samantha, and thank you very much for your time. And and listeners, uh, thank you for tuning in. Uh, and if you'd like to hear uh more podcasts like this, we do them on a regular basis. So stay in touch with change at chasing.com. Um, we wish you well. Take care.

SPEAKER_02 12:28

Thank you.

SPEAKER_00 12:29

Thank you.