Last year was not a vintage year for Murray International (MYI ) fund manager Bruce Stout (pictured above) as he prepares to retire after 20 years running the global equity income portfolio, despite good returns from ‘underappreciated’ Latin America and ‘overlooked’ Europe.

Delivering his final annual results for the £1.5bn portfolio, Abrdn’s Stout reported a net asset value (NAV) total return of 8.6% for the year to 31 December 2023. While this would, in most years  be considered a strong performance – and almost matched 2022’s market-beating performance – it paled in comparison to the 15.7% return for the FTSE All World index.

The equity part of the portfolio returned 9.6%, with the underperformance blamed on a lack of exposure to North America, and to US mega-cap tech stocks in particular. Instead, returns came from elsewhere in the world, notably Latin America, which for the second year running produced the strongest regional index returns, while Stout’s stocks here grew 16%.

Consumer-focused businesses offset declines in mining stocks in a world of falling commodity prices, with airport operator Grupo Asur, personal care group Kimberly Clark de Mexico, Walmex – which is the Mexican division of Walmart, and Banco Bradesco all contributing positively.

‘Blinkered’ investors

Stout said Latin America delivered the strongest performance of any global region for the tenth time in 20 years but is ‘constantly underappreciated’ by global investors ‘blinkered by aversion, apathy, and animosity’.

‘Such ill-informed scepticism remains baffling,’ said Stout, who hands over the reins to long-standing deputies Samatha Fitzpatrick and Martin Connaghan in June after 20 years at the helm.

‘From a self-interested portfolio perspective, long may this continue, with superior growth and dividend opportunities, not to mention diversification benefits, positively contributing to delivering the investment mandate.’

The strongest regional portfolio performance came from Europe, with a 22% return thanks to a combination of strong earnings and dividend growth.

Stout said ‘dynamics between current fundamentals and future expectations dragged investor sentiment across polar extremes of the mood spectrum’ in 2023.

European economies provided little cheer, just dodging recessions, but despite the ‘depressing’ domestic scenarios ‘investment opportunities initiated since the darkest days of Covid continued to perform well’.

‘High-quality industrial companies, leading global energy providers and conservatively managed financials feature prominently among Europe’s corporate titans,’ said Stout.

‘Unburdened by unrealistic expectations, often overlooked by prejudiced perceptions, such European exposures contributed significantly again to overall performance.’

The fund enjoyed above average returns from Swedish industrials Epiroc and Atlas Copco – where some profits were taken – as well as German giant Siemens, Italian electric utility Enel, and BE Semiconductor in the Netherlands. Swiss-based pharmaceutical behemoth Roche was the only European stock that ‘lost any noticeable value’, with the shares sliding 24% over the year.

Stout sold Swedish bank Nordea and bought into French drinks manufacturer Pernod Ricard. The exposure to Europe increased over the period due to strong stock performance.

He also picked up a new position in UK drinks group Diageo (DGE), which was bought with the sale of Vodafone (VOD) proceeds. Exposure to UK stocks declined to a four-decade low as better growth and income became available elsewhere in the world.

Deluded central bankers

When it came to fixed income, Stout made his customary criticism of monetary policy. He said 40 years of ‘relentlessly rising bond markets up to 2020’ mean few investors had witnessed a bear market due to the ‘abhorrent practice’ of creating money to purchase government bonds and depress long-term borrowing rates.

He said ‘discredited’ central banks aim to reduce inflation to a 2% target without causing a recession was a ‘delusion’.

‘Despite the market euphoria of late 2023, the transition from printing money to prudent money remains the single most important, and necessary, change to monetary conditions going forward,’ said Stout.

He said it would have ‘implications for long-term equity multiples’ which will push lower, and bond yields will push higher, and investors should expect lower overall returns ‘for the next decade’.

FTSE World beater – just

Stout’s ascerbic commentary and good relative returns during the global financial crisis and the growth selloff of 2022, proved popular with investors, said Deutsche Numis analyst Ash Nandi.

‘That said, the fund largely underperformed over the last decade, following a stellar period of performance over the previous 10 years,’ she said.

‘During his 20 years as lead manager, the fund has produced NAV total returns of 609% – 10-5% per annum – narrowly outperforming the 586% – 10.3% per annum – for the FTSE All World.’

Nandi said while new managers co-lead managers Fitzpatric and Connaghan will ‘want to put their own stamp on the portfolio’, the ‘quality growth’ approach should fare well ‘if economic conditions remain uncertain and rates remain elevated’.

The shares currently trade at an 11% discount, close to the widest discount over the past decade, which Nandi said reflected the retirement of Stout as well as the lag in performance.

Jonathan Brown, investment companies analyst at JPMorgan Cazenove, said despite being one of the highest dividend payers in its peer group at 4.7%, with the dividend also fully covered, Murray International has derated more than its peers.

‘This difference is perhaps overstated when compared to a market-cap weighted peer group average, because of the high weight in that measure of the premium-rated JPMorgan Global Growth & Income (JGGI ).’

The fact Murray International has been buying back shares is ‘a positive sign’ and will be accretive to NAV but Brown said it ‘will require a change in sentiment to favour non-US markets and improvement in relative performance’ for the trust to rerate.