110 years of global investing

1907 was an interesting year in the UK. The Suffragettes stormed Parliament, the first taxis with meters began operating in London, Sir Robert Baden-Powell formed the Boy Scouts, Rudyard Kipliing received the Nobel prize for literature and, on 18 December, the Scottish Western Investment Company Limited was founded in Glasgow by Brown, Fleming & Murray, Chartered Accountants.

Known today as Murray International, the company’s initial share capital of £500,000 was made up of 50,000 shares of £10 each. The launch proved popular and was considerably over-subscribed. Founding investors included an ironmonger’s assistant, bleacher, solicitor and bank teller.

The original ‘Minute Book’ shows that the trust’s first recorded investment, of some $125,000, was made in Jameson and Western Railroad 4 per cent Equipment Trust Notes. It stated: “Guaranteed principal and interest by the Toledo and Ohio Central Railway. The Notes to be obtained on a basis to yield 7.5 per cent, with an average life of about five years.”

The rest of the original portfolio had an international feel too, with a heavy emphasis on the bonds and preference stocks of railroad and tramway companies from Cuba to Manilla and from Lancashire to Rio de Janeiro.

The first true equity investment didn’t come until 1910, when 1,000 shares in the Union Pacific Railroad were purchased.

The trust has survived two world wars, the great depression and any number of stock market booms and busts. Its management passed to Aberdeen Asset Management at the turn of the millennium and it has been run by the present manager, Bruce Stout, since 2004.

Today, the trust has 77 holdings, 27 of which are fixed income and 50 shares. And it still has a very international feel, with 25 different countries represented. More than half of the trust is invested in Asian and emerging market equities and bonds.

While they are higher up the risk spectrum, emerging market bonds can offer a higher yield than their developed market counterparts. Bruce has holdings in Brazilian and Indonesian bonds, for example, which have yields of between 6%-10%. He believes that there is scope for further interest rate cuts in both countries, which could also boost the price of the assets.

Amongst his equity positions is ASUR, an airport operator that operates out of nine different airports in the southeastern part of Mexico, including Cancun, and which has benefited from the fall in the Peso. He also has a holding in SQM, the Chilean chemical company, SingTel, a Singaporean telecommunications company and Taiwan Semiconductor. The yield on the trust is currently around 4%.

Speaking to Bruce last week, he stated that he feels there is “a lot of complacency in markets. Volatility has evaporated and next year could be a difficult one.” For the first time in a decade, the gearing on the trust is in the bond portion, not the equity portion. His focus is on quality companies that have low levels of debt, as the price of money (or interest rates) in developed markets is likely to increase. He added: “For financial markets accustomed to years of endless, supportive liquidity, the prospect of losing such support is likely to be painful and prolonged. Great care is required in such an unfamiliar investment environment.”