Introduction
Bruce Stout has been fund manager of the 102-year-old Murray International Trust since 2004. Since then, he has reconfigured the trust’s £1 billion investment portfolio away from developed economies and towards high-yielding equities in emerging markets. Born in Dundee in 1958, Stout was educated at Carnoustie High School and the University of Strathclyde (BA hons in economics). He started his career in industry, working for British Telecom and the General Electric Company. In 1987 he moved into asset management, working for 14 years at Glasgow-based group Murray Johnstone, where he carried out a number of roles including investment manager of North American equities, Latin American equities, and emerging markets. Murray Johnston was acquired by Aberdeen Asset Management in 2000, since when Stout has been senior fund manager responsible for global equities at Aberdeen. He has travelled extensively throughout the past 25 years across Asia, Latin America, Europe, and North America. Murray International Trust is today a large, globally diversified investment trust whose roots can be traced to Glasgow’s thriving industrial and shipbuilding past. In 2009 it delivered a share price total return of +35.2%.
Has balance of economic power shifted between the emerging and the developed economies?
For us, the macroeconomic backdrop looks horrible in the developed world, but the opposite prevails in the developing world. The long-run, positive, structural case is population-driven growth and rising real incomes. Where is the majority of the world’s population? In the southern hemisphere. And how old are they? They are young. Therefore they need jobs and growth. Their countries have the savings to ensure this can happen, whereas they didn’t before. Even though they will make mistakes along the way, they have the ability to achieve long-term sustainable growth. The danger for the developed world is when emerging market economies decide to deploy their own capital domestically there won’t be any left to fund over-consumption in the West.
Isn’t investing in emerging markets more risky than investing in developed economies?
First of all you need to define risk and the perception of risk. In 2006, we did a presentation on the case for investing in emerging-market equities; we showed a slide entitled Bank A and Bank B. Bank A was willing to lend you five times your salary on a property; it would lend you 125% of the value of the house, with no need for a deposit. For an extra 100 basis points, the bank would give you a self-certified mortgage—which meant you didn’t have to justify your earnings. And it competed in a very competitive market. Bank B was only prepared to lend you twice your salary. It demanded a 25% down-payment for any property purchase. It operated in an underdeveloped housing market, with low penetration and low levels of competition. If you put that slide up at an investment seminar and asked, “Would you invest in Bank A or B?” of course everyone says Bank B—they said they wouldn’t touch Bank A! But when you told them that Bank A was a Scottish bank, and B was an Indian bank and asked them which bank they would invest in, they said they wouldn’t touch the Indian bank because it was “much higher risk”! We did it time after time after time and the results were always the same.
It comes down to ignorance and prejudice, two of the most powerful forces in investment. These human frailties, along with sentiment and emotion, consistently hamper some investors’ objectivity, but provide scope for others to prosper. If you had perfect rationality amongst all investors, then there wouldn’t be any pricing anomalies and dislocations in markets which enable people like us to take a contrarian view.
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