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Investors Pay Premium for Scots Fund Making 84 Percent in Crisis

September 05, 2012

Investors are paying more than ever to buy into Bruce Stout’s thinking that the world is still a long way off from solving its economic problems.

The 1.1 billion-pound ($1.7 billion) Murray International Trust (MYI) managed by Stout at Aberdeen Asset Management Plc (ADN) is the top performer of the U.K.’s 10 largest closed-end funds during the financial crisis, returning 84 percent in the five years to Aug. 31, according to Morningstar Inc. Its stock market value is now 8.3 percent higher than its assets compared with a discount of 20 percent a decade ago, data compiled by Bloomberg show.

Stout hasn’t added a single company to his fund this year. Key to his strategy is the view that central bankers focus on interest rates and quantitative easing and have yet to find the right tools to fix the economy while investors are missing opportunities because they perceive risk incorrectly.

“All they’re doing is going round and round in the credit cycle believing that old measure of reducing interest rates will cure the illness that’s completely different from the past,” Stout said in an interview in Edinburgh. “They’re still looking at it in the same blinkered way.”

European Central Bank President Mario Draghi said on July 26 he would do everything it takes to protect the euro, though he didn’t announce details of any plan. Federal Reserve Chairman Ben S. Bernanke made the case for further monetary easing at the annual forum last week in Jackson Hole, Wyoming.

“We’re no further forward at all in terms of the defining issue of the day: the crisis of public sector indebtedness,” Stout said at his office on Aug. 24. “That unfortunately will take a decade to make any kind of dent in it.”

Railroad Bonds

The Murray International Trust was founded in 1907 for wealthy Scots to invest in railroad bonds across the Americas, the emerging markets of the day, and Stout isn’t constrained by having to invest in specific types of assets.

As a result, the 53-year-old picks and holds companies that he reckons can make money in any economic climate.

The largest bond investment is securities from Brazil’s Vale SA (VALE3), the biggest iron-ore producer in the world. The company’s A- rating from Standard & Poor’s is the highest among all Brazilian companies. The yield on the November 2036 Vale dollar bonds held by Murray International was 5.66 percent yesterday, down from 6.75 percent five years ago.

The fund’s biggest two stock investments are British American Tobacco Plc (BATS), Europe’s largest cigarette maker, and PT Unilever Indonesia, part of the world’s second-largest consumer products company, according to Murray’s monthly fact-sheet.

Defensive Fund

Murray International is considered “defensive,” meaning its investments gain less during bull markets and lose less when stocks and bonds decline, said Richard Troue, an analyst at Hargreaves Lansdown, a financial adviser in Bristol, England, that invests in the fund for clients.

“If there was a return to positivity and all of a sudden markets started to rocket then he’s holding a lot of companies that would be left behind and that’s one of the risks,” said Troue. “You have to question whether you’d buy the fund now or if it’s better to wait. We’d be inclined to wait.”

BAT shares have risen 5.2 percent this year, while the MSCI World Index (MXWO) of developed markets is up 7.8 percent. The trust returned 14.1 percent over the past 12 months, the most among the 10 largest closed-end funds in the U.K., data from Chicago- based Morningstar Inc. show.

Oil Stocks

Stout said he took advantage of a dip in the oil price and the decline in related stocks to add to holdings in companies including Total SA (FP), which is among his top 20 equity investments. Total shares dropped 10 percent in the first half of 2012 and have recovered 10 percent since then.

That reflects how investors should stick with companies with solid earnings and dividends rather than be swayed by the markets, Stout said. The MSCI World Index jumped 11 percent in the first quarter of this year before declining 5.8 percent in the second and rallying 3 percent so far in the third.

“Sentiment is taking investors’ minds on some kind of roller-coaster journey where you can come in at the beginning of the year and drive equity markets higher purely based on hope and expectation,” Stout said in an interview at his office in Edinburgh. “You never make money on hope.”

To contact the reporter on this story: Rodney Jefferson at

To contact the editor responsible for this story: Tim Quinson at

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