# Murray International Trust robust recovery from April to end of June 2020

- Link: https://www.directorstalkinterviews.com/murray-international-trust-robust-recovery-from-april-to-end-of-june-2020/412851370
- Published: 2020-08-14T07:30:31+01:00
- Author: Amilia Stone

**Murray International Trust PLC** (LON:MYI) has reported the unaudited results 
of the Company for the six months ended 30 June 2020.

**HIGHLIGHTS**

|   | 30 June 2020 | 31 December 2019 | % change | 
| Total assets less current liabilities (before deducting prior charges) | £1,535.0m | £1,738.8m | -11.7 | 
| Equity shareholders’ funds (Net Assets) | £1,335.2m | £1,539.1m | -13.2 | 
| Share price – Ordinary share (mid market) | 994.0p | 1,260.0p | -21.1{A} | 
| Net Asset Value per Ordinary share | 1,031.8p | 1,190.0p | -13.3{A} | 
| (Discount)/premium to Net Asset Value per Ordinary share{B} | (3.7%) | 5.9% |   | 
| Net gearing{B} | 14.2% | 11.3% |   | 
| Ongoing charges ratio{B} | 0.66% | 0.61% |   |

_{A} The movement relates to capital only and does not take account of the reinvestment
of dividends._

_{B} Considered to be an Alternative Performance Measure. Further details can be
found below._

PERFORMANCE (TOTAL RETURN) {A}

Performance (Total Return){A}

|   | Six months ended 30 June 2020 | Year ended 31 December 2019 | 
| Share price{AB} | -18.7% | +16.5% | 
| Net asset value per Ordinary share{A} | -10.7% | +12.4% | 
| Reference Index | -4.7% | +21.1% |

_{A} Considered to be an Alternative Performance Measure. Further details can be
found below._

_{B} Mid to Mid_

_Source: Aberdeen Standard Fund Managers Limited, Morningstar & Lipper._

**INTERIM BOARD REPORT**

**Chairman’s Statement**

**Background**

During the first six months of 2020, the Covid-19 pandemic has spread across the
world with the tragic loss of over half a million lives. Emergency responses to 
the health crisis have caused dramatic changes to the global economic and political
backdrop, with widespread recession and unprecedented Government intervention. Enormous
monetary and fiscal support has proven to be the norm in most major economies. Under
such circumstances, the path of financial markets over the period was always likely
to be highly volatile, and so it has proven. Panic and fear prevailed in the three
months to the end of March, while renewed hope and expectation powered a robust 
recovery from April to the end of June. This recovery period has been characterised
by significant outperformance by the US stockmarket, in particular the technology
and healthcare sectors, and by a pronounced narrowing of the overall market to a
small number of large outperforming stocks. The Company’s broad, diversified exposure
curtailed total-return depreciation to some extent but performance was unable to
match returns arising from these trends.  During this period of intense volatility,
attractive investment opportunities did arise and were acted upon, consistent with
the long-term investment objectives of the Company.

**Performance and Dividends**

The net asset value (NAV) total return, with net income reinvested, for the six 
months to 30 June 2020 fell by 10.7% compared with a fall of 4.7% for the Company’s
Reference Index (comprising the return on the FTSE All World TR Index from 27 April
2020 and prior to that the return from the former benchmark which was a composite
of 40% FTSE World UK and 60% FTSE World ex UK). Over the six month period, the share
price total return fell by 18.7%, reflecting a move from trading at a premium of
5.9% to trading at a discount of 3.7%. The Manager’s Report contains more information
about the drivers of performance in the period and the portfolio changes effected.

Two interim dividends of 12.0p (2019: 12.0p) have been declared in respect of the
period to 30 June 2020. The first interim dividend is payable on 14 August 2020 
to shareholders on the register on 3 July 2020 and the second interim dividend will
be paid on 19 November 2020 to shareholders on the register on 2 October 2020.  
As I have stated previously, the Board intends to maintain a progressive dividend
policy given the Company’s investment objective. This means that 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.  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. The Board currently intends
in 2020 at least to match the dividend payout of 53.5p per share in 2019. It is 
expected this will entail some use of the significant revenue reserves built up 
over prior years for occasions such as the current crisis. At the end of June 2020
the Balance Sheet revenue reserves amounted to £69.6m.

**Annual General Meeting**

At the Annual General Meeting held on 27 April 2020 all resolutions were duly passed
by shareholders.  In addition to the usual business shareholders approved the Board’s
proposals to amend the Company’s investment objective and to adopt a new Reference
Index which both became effective from the date of the AGM.  I would like to thank
shareholders for their support and forbearance, given that we were required to hold
a purely functional AGM in light of the Covid-19 pandemic.  The Board remains very
keen to have an opportunity to meet shareholders and will consider whether there
is any possibility of holding an investment presentation in London later in the 
year in lieu of the AGM.  In any event we plan to return to London for the AGM on
23 April 2021.

**Management of Premium and Discount**

The Board continues to believe that it is appropriate to seek to address temporary
imbalances of supply and demand for the Company’s shares which might otherwise result
in a recurring material discount or premium. Subject to existing shareholder permissions(
given at the last AGM) and prevailing market conditions over time, the Board intends
to continue to buy back shares and issue new shares (or sell shares from Treasury)
if shares trade at a persistent significant discount to NAV (excluding income) or
premium to NAV (including income). The Board believes that this process is in all
shareholders’ interests as it seeks to reduce volatility in the premium or discount
to underlying NAV whilst also making a small positive contribution to the NAV.  
During the period under review, the Company has issued 80,000 new Ordinary shares
under the Company’s blocklisting, all at a premium to the underlying inclusive of
income NAV.  Subsequent to the period end, the Company has purchased for Treasury
126,389 Ordinary shares at a discount to the underlying exclusive of income NAV.
At the latest practicable date, the NAV (excluding income) per share was 995.4p 
and the share price was 977.5p equating to a discount of 1.8% per Ordinary share.

**Gearing**

In May 2020 the Company agreed a new £50 million revolving credit facility with 
the Royal Bank of Scotland International Limited, which was drawn in full at an 
initial all in annualised rate of 0.83875% and used to repay a maturing £50 million
fixed rate loan, also with the Royal Bank of Scotland International Limited.  The
new facility will expire on 13 May 2021.  At the period end the Company had net 
gearing of 14.2%.

**Ongoing Charges Ratio (“OCR”)**

The Board remains focused upon delivering value to shareholders and regularly reviews
the OCR.  During the review period the OCR has increased from 0.61% to 0.66% reflecting
the decline in net assets caused by market weakness which outweighed reductions 
seen elsewhere in administrative expenses. A full breakdown of the OCR calculation
is provided on pages 23 and 24 of the published Half Yearly Report for the six months
ended 30 June 2020.

**Directorate**

On 24 April 2020 Mr Peter Dunscombe retired from the Board. I would like to reiterate
the thanks that I expressed to Peter at the time of the Annual Report for the assistance
that he provided to me as Senior Independent Director, and for his enormous contribution
to the Company’s affairs.

On 1 May 2020 we welcomed Mr Simon Fraser to the Board as Chairman designate ahead
of my scheduled retirement at the AGM to be held in April 2021.  We are focused 
on a smooth transition ahead of that date and I am pleased to confirm
that the Board
is already enjoying the benefit of Simon’s extensive experience.

**Outlook**

Against the fluctuating backdrop of clinical, political and economic events, proffering
a credible near-term outlook is arguably even more problematic than usual. Without
greater clarity on how the pandemic evolves and ultimately impacts health and recovery
trajectories throughout the world, most forecasts are merely speculative. The longer
term implications for the global economy, capital markets, future dividends, and
even normal day to day living, are also largely unknowns at this stage. However,
some potential financial consequences must be considered now ahead of events.  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. During the adversity of the last six months opportunities have been taken
to reallocate assets from defensive fixed income holdings into equities with these
long-term earnings and dividend growth characteristics, all within the diversified
global nature of the Company’s portfolio. Such repositioning increases confidence
in the delivery of the long term income and growth investment objectives of the 
Company.

**Kevin Carter,
Chairman

13 August 2020

**INTERIM BOARD REPORT**

**Manager’s Review**

**Background**

Unlike previous financial market dislocations, the underlying root cause of the 
past six months crisis – a global health pandemic – was interpreted by policymakers
and politicians as a “nobody’s fault recession”. This allowed for unopposed, proactive
intervention by the Authorities, unleashing a flood of liquidity into financial 
markets through interest rate cuts. Fiscal policy responses have also been unprecedented,
with governments stepping in to underwrite wages for furloughed workers and providing
emergency loans to support businesses.  Capital controls are likely to tighten as
the International Monetary Fund has been inundated with requests for aid, with many
emerging economies facing the additional pressures of under-resourced health systems,
soaring debt levels, and policy and de-globalisation challenges. Designed to prevent
systemic economic collapse, such measures also had significant implications for 
the performance of stocks and bonds.  Fixed income yields collapsed across the board,
and numerous technology stocks, deemed to be beneficiaries of “social isolation”,
soared to unparalleled heights. The severity of dividend cuts from companies tackling
evaporating revenues and profits has been the deepest on record. For global income
funds, the backdrop could scarcely have been more difficult.

**Asia**

The Company’s significant exposure to Asia proved relatively robust with positive
capital appreciation from technology holdings, including **Taiwan Semiconductor 
Manufacturing Company** and South Korea’s **Samsung Electronics**. This offset some
of the weakness from investments in **Indocement** and **Siam Commercial Bank**,
from the more consumer-driven markets of Indonesia and Thailand. Dividends from 
Asian holdings were generally less affected than those in the West, with banks, 
insurance and telecom companies mostly delivering in line with expectations.

The region’s swift and pragmatic response to the Covid-19 pandemic, combined with
lower levels of debt and strong corporate balance sheets, augers well for recovery
as economic restrictions ease. The volatility experienced in the first half of 2020
presented an opportunity to increase the Company’s exposure to the region by introducing
two new investments in China. Financial services conglomerate **Ping An Insurance**
and real estate developer **China Resources Land** together drive further levels
of diversification within the portfolio and offer attractive levels of dividend 
growth.

**North America**

The US economy ground to a halt in April, with 95% of citizens locked down as the
virus took hold. The Federal Reserve announced unlimited quantitative easing and
the intention to keep interest rates near zero to 2022. US unemployment reached 
record highs of 14.7% in April before declining to 11.1% in June. Some corporates
gained marginal relief from the fall in labour costs, helping offset the losses 
of weaker consumption. US corporate earnings were delivered with considerably fewer
companies providing forward guidance. This resulted in downward revisions to consensus
numbers broadly expecting further contractions in 2020 before a recovery in 2021,
albeit still below pre-Covid-19 levels. Leveraged share buybacks are now likely 
to get more questions than support and many programmes have been suspended.

Two new investments were made in the United States amid the market sell-off; **AbbVie**,
the Chicago based pharmaceutical Company fresh from its recent acquisition of Allergan,
and **Broadcom**, a designer of semiconductor and infrastructure software products.
Both afford the Company enhanced levels of income and have impressive, attractive
growth in their dividend distribution. The portfolio’s defensive exposure to North
America delivered in line with expectations. There were no dividend cuts from Canadian
holdings and material dividend increases from recent additions in AbbVie and Broadcom.

**Europe**

Europe began to emerge from lockdown as infection levels fell, but still faced OECD
forecasts of 9.1% GDP contraction for 2020. The European Central Bank increased 
its asset purchase plan by 12% of GDP, with rates already negative. More recently,
they signalled a pause in policy action as markets began to stabilise, and consideration
of further expansion of the emergency bond purchase scheme. Swedish industrial holdings**
Atlas Copco** and **Epiroc**, Swiss pharmaceutical exposures including **Roche**,
and Norwegian telecom company **Telenor** all held up very well under the circumstances
and remain core portfolio exposures.

**UK**

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.

**Latin America**

Latin America endured a more torrid time as growth concerns weighed heavily on commodity
dependent economies such as Brazil and Mexico. Significant oil price weakness and
the reality of impending recessions worldwide initially prompted investors to rapidly
exit numerous emerging markets. With stability now re-established, the portfolio’s
Latin American exposure has begun to recover, but patience will be required before
global confidence towards the region is fully restored. Scepticism towards emerging
market equities was not replicated in the asset class’s corresponding debt markets.
Portfolio exposure to emerging market bonds experienced some days of intense volatility,
but over the period, these bonds contributed very positively to relative capital
performance and income accrual. Improving fundamental dynamics of favourable demographics,
healthy savings and long term investment objectives in the emerging world continue
to support and justify maintaining exposure to this attractive asset class within
the portfolio. Exposure to the asset class was marginally reduced over the first
half of the year. The initial resilience of the Company’s investments in short-dated
Brazilian Government bonds made them an ideal candidate for disposal, with the proceeds
being rotated carefully back into equities, taking advantage of the weak market 
environment.

**Outlook**

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. 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 becomes quantifiable, the risk/reward between portfolio
concentration and portfolio diversification appears poised to rotate favourably 
towards
the latter.

Bruce Stout

Senior Investment Director

Aberdeen Asset Managers Limited

13 August 2020

**INTERIM BOARD REPORT**

**Directors’ Disclosures**

**Principal Risks and Uncertainties**

The Board has approved a matrix of the key risks that affect the business. The major
financial risks associated with the Company are detailed in note 18 of the 2019 
Annual Report and the other principal risks are summarised below. These risks represent
the principal risks for the remaining six months of the year.

Details of the management of the risks and the Company’s internal controls are disclosed
on pages 25 and 26 of the 2019 Annual Report. They can be summarised as follows:

·      Investment strategy and objectives;

·      Investment portfolio, investment management;

·      Financial obligations;

·      Financial and Regulatory; and

·      Operational.

The Board also has a process in place to identify emerging risks.  If any of these
are deemed to be significant, these risks are categorised, rated and added to the
Company’s risk matrix. 

The Board has reviewed the risks related to the Covid-19 pandemic.  Covid-19 is 
continuing to affect the value of the Company’s investments due to the disruption
of supply chains and demand for products and services, increased costs and potential
cash flow issues. The pandemic has significantly impacted world stock markets as
well as creating uncertainty around future dividend payments. However, the Board
notes the Manager’s robust and disciplined investment process which continues to
focus on long-term company fundamentals including balance sheet strength and deliverability
of sustainable earnings growth. The pandemic has also impacted the Company’s third
party service providers, with business continuity and home working plans having 
been implemented.  The Board, through the Manager, has been closely monitoring all
third party service arrangements and is pleased to report that it has not seen any
reduction in the level of service provided to the Company to date.

There remains uncertainty surrounding Brexit and potential issues surrounding the
certainty and/or timing of future withholding tax repayments following the expiry
of transitional arrangements in 2021.  The Board will continue to monitor developments.

**Related Party Transactions**

ASFML acts as Alternative Investment Fund Manager, AAM acts as Investment Manager
and Aberdeen Asset Management PLC acts as Company Secretary to the Company; details
of the service and fee arrangements can be found in the 2019 Annual Report, a copy
of which is available on the Company’s website. Details of the transactions with
the Manager including the fees payable to Aberdeen group companies are disclosed
in note 11 of this Half Yearly Report.

**Going Concern**

In accordance with the Financial Reporting Council’s Guidance on Risk Management,
Internal Control and Related Financial and Business Reporting, the Directors have
undertaken a rigorous review and consider that there are no material uncertainties
and that the adoption of the going concern basis of accounting is appropriate.  
This review included the additional risks relating to the ongoing Covid-19 pandemic
and, where appropriate, action taken by the Manager and Company’s service providers
in relation to those risks. The Company’s assets consist of a diverse portfolio 
of listed equities and bonds and the portfolio in most circumstances is realisable
within a very short timescale. The Directors believe that the Company has adequate
financial resources to continue its operational existence for the foreseeable future
and at least 12 months from the date of this Half Yearly Report. Accordingly, the
Directors continue to adopt the going concern basis in preparing these financial
statements.

**Directors’ Responsibility Statement**

The Directors are responsible for preparing the Half Yearly Financial Report in 
accordance with applicable law and regulations. The Directors confirm that to the
best of their knowledge:

·      the condensed set of Financial Statements has been prepared in accordance
with Financial Reporting Standard 104 (Interim Financial Reporting);

·      the Half Yearly Board Report includes a fair review of the information required
by rule 4.2.7R of the Disclosure and Transparency Rules (being an indication of 
important events that have occurred during the first six months of the financial
year and their impact on the condensed set of Financial Statements and a description
of the principal risks and uncertainties for the remaining six months of the financial
year); and

·      the Half Yearly Board Report includes a fair review of the information required
by 4.2.8R (being related party transactions that have taken place during the first
six months of the financial year and that have materially affected the financial
position of the Company during that period; and any changes in the related party
transactions described in the last Annual Report that could do so).

The Half Yearly Financial Report for the six months ended 30 June 2020 comprises
the Half Yearly Board Report, the Directors’ Responsibility Statement and a condensed
set of Financial Statements.

For and on behalf of the Board of Murray International Trust PLC

Kevin Carter

**Chairman**
13 August 2020

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