How to invest when bonds and equities are expensive

Sam Slator 20/03/2017 in Multi-Asset

In a statement accompanying the recent annual results of the Murray International Trust, Bruce has expressed his frustration at the way financial markets have been distorted over the past five years.

Income investments with no income

“Should future generations ever search for the seminal moment in economic history where so many supposedly intelligent people masquerading as central bankers and their financial market cheerleaders descended to the depths of discredited stupidity, then 13 July 2016 will be as good as any. For on this day Germany issued a ten year government bond (called a ‘bund’) with no coupon. An income investment with no income!

“To emphasise this particular hideous distortion from numerous others which have polluted financial markets over the past five years is not an attempt to rank its significance. It serves only to highlight just how incredibly far the world has shifted from economic orthodoxy when savers expected, and were entitled to, a return on their savings.

“The tangled web woven around spiralling debts, insolvent banks, unsustainable deficits, mis-allocated capital and erosion of real wealth exists only to distort and deceive. When such disrespect of real capital value exists, in what can we trust?”

Familiarity in an unfamiliar world

“It may appear disconcerting,” he continued, “but is no doubt worth repeating, against such a backdrop of unfamiliar extended valuations and deeply concerning fundamentals, there are no places to hide. The bottom line, of which we are acutely aware, is that both bond and equity markets are very expensive on an absolute and relative basis.

“Portfolio diversification, through which exposures reflect preferred investment opportunities, does have the benefit of a wide opportunity set. For Elite Rated Murray International Trust, the flexibility to invest anywhere in the world remains a powerful advantage.

“Trusting in tried and tested methods of stock and bond selection also brings a degree of familiarity to an unfamiliar world. Despite overall valuation concerns, it is still possible to differentiate between whether a business is cheap or expensive, whether it is quality or not.

“With an emphasis, as ever, on capital preservation and maintaining dividends, diversification remains the strategy of preference, extreme caution the modus operandi.”

Strong performance and increasing dividends

Murray International Trust PLC’s annual results for the 12 months to 31 December 2016 were released on 13 March 2017.

The trust’s net asset value posted a total return of 40.3% compared with the total return of 25.8% from the company’s benchmark (40% FTSE World UK Index and 60% FTSE World ex UK Index). Over the period, the share price posted a total return of 50.5%.

Three interim dividends of 10.5p per share were also declared during the year. The board is recommending a final dividend of 16.0p. If approved by shareholders, the dividend for the year will amount to 47.5p, an increase of 2.2% from the previous calendar year year.

Over ten years, the share price total return has been 184% versus a benchmark return of 114%. Over this period, the dividend has increased from 19p to 47.5p.

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