Murray International is among the biggest investment trusts in its area, a global fund and a conviction investor with a rather negative view of British and European stock markets at present and a view that, even in the United States, there are few bargains to be found. This means its portfolio is weighted towards emerging markets, with about a quarter of its assets in Asia Pacific excluding Japan, and only two quoted on the Japanese market.
That focus on emerging markets means that some of its biggest holdings may be unfamiliar to UK investors. They include Asur, which operates airports in Mexico including one at Cancun, the tourist destination, and several technology and telecoms companies.
There are a total of 76 holdings, a number that has been increasing in the past year. That diversification, and holdings in some relatively unknown stocks, is an attraction, but the emerging market focus has meant that the fund underperformed between 2013 and 2015 as those markets fell out of favour. It is part of the Aberdeen Asset Management stable and investors in the former Aberdeen will recall its vulnerability to such markets.
Fortunately, the tide has turned. Murray International did rather better than its benchmark indices in 2016 and this outperformance continued into the current year, a total net asset return, assuming that income is reinvested, of 9.4 per cent in the first half against a benchmark performance of 5.6 per cent. The shares, up 10p at £12.88 at yesterday’s close, sell at a solid premium to the latest net asset figure of 1,195.54p and there is a facility to buy them back to manage this.
Against those less well-known investments there are holdings in two big tobacco stocks that provide some reliability of income. Aside from British American Tobacco, the fund is chary of other UK stocks because the managers believe there is a danger that dividend payments are becoming overstretched and may have to be cut back. In any event, the fund has been moving away from consumer and healthcare in favour of those emerging markets, which managers believe offer better value than Europe, the US or Japan.
Murray International offers a decent dividend income, but its wariness over those overextended equity markets means a higher proportion of assets are in fixed income than at its peers. The fund is one for the cautious investor who would like a proper yield.
MY ADVICE Buy
WHY Murray is a conviction investor with a low weighting to developed markets, which would suit those with reservations over these
Nex Group
About the last thing the market was expecting from Nex Group was a veiled profit warning for its post-trade services business. The trading update coincided with a seminar for analysts and investors on the benefits of the reorganisation of Nex Optimisation, that post-trade division, into what are unfortunately described as “solution pillars” designed to be more reactive to customers’ needs.
This comes after the sale at the turn of the year of the company’s voice-broking operations to TP Icap, the renamed Tullett Prebon. The electronic side was retained, but this will always be reliant on the volatility or otherwise of the markets it serves. Growth, therefore, will come from post-trade services, including risk mitigation, information services and the like.
This requires investment, as does the looming opportunity from Mifid II, the biggest shake-up in financial services for a decade. Finally, the corresponding reporting period demonstrated greater volatility in those markets and this, inevitably, had an effect on post-trade.
Taking all this into account, margins in the first half to September 30 will fall from 29 per cent last time to nearer 20 per cent, though they should normalise in the second half. Nex is sticking to earlier forecasts of group annual revenue growth of 7 per cent to 10 per cent and margins of more than 40 per cent. A fall in the shares of 37p to 625p looks like an over-reaction. Tempus tipped them at 464p at the start of the year. Yesterday’s fall looks like a buying opportunity.
MY ADVICE Buy
WHY Fall looks overdone, given gains from investment
James Halstead
Notching up another record year for revenues and profits at James Halstead, the carpets and floor coverings specialist, is not a bad performance, given some of the challenges the company faced in the 12 months to June 30.
Given how much of its product is sourced from abroad, the fall in the value of sterling was one obvious headwind. Others included what Halstead describes as “turmoil” in the British supply chain. Domestic sales fell by 5.2 per cent, the consequence of destocking by two big customers, one because of a change of ownership. UK trading has been strong since the financial year’s end, suggesting that destocking has ended. Raw material prices rose because of an explosion at a German supplier, a fire at a Dutch one and then a further fire in Germany. In addition, one US supplier withdrew from the European market.
That squeeze on margins accounts for the mismatch of a 6.5 per cent rise in revenues and a 2.5 per cent rise in pre-tax profits to £46.6 million. Halstead, which has a market capitalisation of more than £900 million, is a good generator of cash and the total dividend is up by 8 per cent. The shares, off 2¾p at 436p, sell on 24 times this year’s earnings and look fully priced.
MY ADVICE Avoid
WHY Rating is high, given exposure to consumer spend
