Murray International Trust boss brands current climate ‘horrible’
The head of Aberdeen Asset Management’s Murray International Trust has described as “horrible” the UK’s current economic environment.
Bruce Stout’s bleak appraisal, amid a climate of record low interest rates and gilt yields, came as the fund announced that it had achieved a total return on net asset value of 30.1 per cent in the six months to June 30, and with a warning that companies will soon be forced to raise pension fund contributions.
Murray’s half year result was way ahead of a 10 per cent total return on its benchmark, a 40-60 composite of the FTSE World UK and FTSE World ex UK indices.
But speaking as the results were published, Mr Stout said government measures designed to ease the current economic turmoil were doomed to fail.
Last week the Bank of England reacted to the uncertainty provoked by the UK’s decision to leave the UK by cutting base rates to a record low of 0.25 per cent.
The move to avoid a recession also came as the Bank increased its quantitative easing programme of Government bond purchases from £375 billion to £435 billion.
Mr Stout said: “Pulling rates down and down and down and printing money is not a solution to anything. It hasn’t been for seven or eight years now. Still they do it.”
He went on: “One of the biggest issues you have is there is nothing familiar about the UK or Europe any more. They have just run out of all fiscal policy options, all monetary policy options. Particularly, the UK over recent years has become a hostage to foreign capital.”
While noting the attractiveness of UK companies to investors in the current climate, he said: “The longer this low-yield environment persists, the more money companies are going to have to put into their pension funds, which is something that has also been building up for the last few years.
“If pension funds are invested in bonds, and bonds have no yield, how on earth are they going to cover their liability?”
Mr Stout also highlighted what he believes is the biggest pressure on UK corporate dividends when we posed the question of why companies would pay high yields when the yield on a 10-year gilt was only 0.56 per cent.
Murray International, which has tens of thousands of private shareholders, has recently cashed-in on the pound’s post-Brexit tumble because nearly 90 per cent of its net assets are invested overseas, and its portfolio in the UK, which includes an interest in Glasgow-based engineering giant Weir Group, is at its lowest level for 20 years - 15 years ago it would have had around 40 per cent of its assets in the UK. Mr Stout said the trust was now invested in only seven UK companies,.
However, he could not offer any insight in to what leaving the EU will mean going forward, admitting: “We just don’t know. Nobody knows. Nobody can quantify, or try to project what will happen because there is no roadmap for this. We just don’t know what is ahead here.”
Mr Stout said there were better opportunities to be had through overweight positions in Asia and Latin America, a stance echoed by Trust chairman Kevin Carter who said the portfolio was focused on “nations that have favourable demographics, with reasonable growth and prosperity potential”.