Bargain hunter: A discount Brexit winner with 4.7% yield

The performance turnaround by Murray International, one of our sister magazine Money Observer's Rated Funds, has been tipped to continue by analysts in the event of further sterling weakness.

The trust, which currently offers a dividend yield of 4.7%, is available on a discount of 7.4%. Over the past year, including two weeks ago ahead of the EU referendum vote, the trust has typically traded on a small premium.

But analysts caution that the fund's current discount should only be viewed as an opportunity by long-term investors, due to the global trust's above-average exposure to Asian and other emerging markets.

Manager Bruce Stout is a contrarian investor who focuses on picking the right companies at cheap prices. He is currently adopting a cautious stance, placing a greater emphasis on reliable dividend payers. In Stout's opinion, stockmarket valuations are too rich in an environment where profit headwinds are coming thick and fast.

Attractive for long-term investors

According to broker Winterflood, the defensive positioning will stand the fund in good stead in the months ahead, which are likely to prove to be a more volatile environment for equity markets.

Winterflood also tips the trust to benefit from sterling weakness, due to the fact that the majority of the portfolio, around 90%, is not held in sterling assets.

Innes Urquhart, analyst at Winterflood, says: "Bruce Stout has generated a strong long-term performance record and we continue to rate him highly.

"After a more difficult period, performance has picked up this year and has been helped more recently by the portfolio's underweight exposure to the UK and therefore sterling.

"We would also expect the weakening of sterling to have been beneficial to revenue earnings, and therefore dividend cover, and the fund's dividend yield remains attractive."

Stephen Peters, analyst at Charles Stanley, agrees that the current discount level provides a "good entry point".

Peters adds: "But what investors need to remember is that the reason why the trust has performed well this year - its emerging market exposure - could reverse over the short term. But for long-term investors it is an attractive option, particularly for income investors."

The trust features in our top 10 best Money Observer Rated Funds for the first six months of the year, having gained 23%. This is well ahead of the investment trust global sector average return of 6.5%.

Over five years, however, Murray International is lagging the sector average, up 25% against 47%.

How we find investment trust bargains

Each month Money Observer highlights a couple of investment trust bargains, both online and in our monthly magazine.

We will also occasionally draw attention to investment trusts that are "too hot to handle" - those that are trading on big premiums.

Our ideas come from regular conversations with investment trust analysts, and we will try to provide a mixture of bargains, from "hidden gem" trusts with less than £200 million in assets to the more established names that typically trade on a smaller discount or premium.

For the sake of simplicity, rather than using technical measures such as the "Z score", in this column we will identify bargains by comparing current discounts with their 12-month averages.

Only those trusts with a wider discount than their average are considered. We will also look at the overall sector and the quality of the trust, and then take a view on whether the discount looks a good opportunity.

This article was originally published by our sister magazineMoney Observer here.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser