Murray Income Trust: October 2023 update

• Charles Luke is an experienced income investor having managed this investment trust since 2006
• The manager looks for good quality companies, which can be bought at a reasonable share price and pay a dividend
• The trust has increased its annual dividend to investors for the last 50 years, which is one of the longest records in its sector

How it fits in a portfolio

Murray Income Trust aims to provide a high and growing income combined with capital growth, by mainly investing in UK companies. This trust could form part of an income portfolio or add UK exposure to a broader portfolio.

Manager

Murray Income Trust has been managed by Charles Luke since October 2006, with Iain Pyle appointed in September 2018 as his deputy. Luke and Pyle have the support of the UK equity team, and other regional teams at abrdn.

Both managers help run other UK equity income funds at abrdn. Luke began his investment career in 1998 at Framlington Investment Management before joining Aberdeen in 2000. Pyle was formally an oil & gas analyst at Sanford Bernstein from 2007 and prior to this a management consultant at PwC. He joined Standard Life Investments in 2015.

Process

The trust mainly invests in larger UK companies, with some medium-sized and overseas companies. The managers focus on capital preservation and look for good quality companies, which can be bought at a reasonable share price and pay a dividend.

Luke believes that well-managed companies with sustainable and rising dividends will see their share prices grow over time. This combination could deliver both income and capital growth, though neither are guaranteed. Luke aims to manage risk by keeping the trust diversified, investing across a range of sectors. This approach and focus on quality companies and capital preservation has historically led to better performance in weaker markets, although nothing is guaranteed. Up to 20% of the trust can be invested in overseas companies when Luke finds good opportunities.

The manager made some changes to the trust’s holdings over the last year, adding five new companies to the portfolio. This included a new investment in hobby miniatures company Games Workshop as well as some overseas based companies like Swiss pharmaceutical company Roche, and luxury goods company LVMH. Luke also sold 15 of the trust’s holdings during the year. One of these was real estate business Watkin Jones. The position was sold following a profit warning which led to a change in confidence in the company’s business model and outlook.

Investors should be aware the trust can borrow money to invest with the intention of increasing returns (known as gearing), but this could magnify losses in a falling market and increases risk. At the end of the trust's last financial year in June 2023, gearing stood at 10.4%. The manager can also use derivatives, which if used adds risk.

Culture

Aberdeen Asset Management and Standard Life Investments merged in 2017, creating Aberdeen Standard Investments (ASI). In July 2021, the company changed name once again to abrdn to simplify and unite its business under one single brand. Since the merger, there have been changes to both investment processes and senior management at the firm, with both former chief executives leaving. The UK equity investment team is well resourced, seems settled and well established. Members share research and ideas with each other, and work with one another to debate and challenge stock decisions.

ESG integration

Luke incorporates environmental, social and governance (ESG) factors into his company analysis, as do all the investors at abrdn. As a long-term investor, he believes this helps to highlight businesses that use more sustainable practices and could thrive over the long term. This could drive long-term dividends and it could also uncover risks that are less obvious through more traditional company analysis.

abrdn is a firm well known for its commitment to ESG. Responsible investing has been part of the business since it set up its Corporate Governance team in 1992. We like that the firm’s policy positions on a range of divisive issues, from plastics and tobacco to palm oil and biodiversity, are easily available on their website. The firm also produces frequent ESG-related thought leadership articles, a podcast series and an annual Stewardship report.

We’re pleased to see that the firm’s commitment to ESG has filtered down to the fund level. abrdn fund managers generally see themselves as owners of businesses, not investors, and stewardship is an important part of their investment processes. The firm exercises all voting rights and engages with management to encourage best practice.

ESG and stewardship factors are included in every stock research note and each firm receives an ESG score, based on its ESG credentials and its ability to manage ESG risks. In fixed income, ESG risks are assessed and priced alongside other credit risks, and the managers encourage action that will reduce these risks. As with equities, each issuer receives an ESG risk rating. All managers have access to a central ESG team, as well as specialist on-desk analysts.

Cost

The trust's ongoing charge for the year ended 30 June 2023 was 0.50%, which is slightly higher than the previous year's charge of 0.48%. If held in a SIPP or ISA the HL account charge of 0.45% per annum (capped at £200 per annum for a SIPP and £45 for an ISA) also applies. This account charge doesn't apply if held in a Fund and Share Account. Investors should refer to the latest annual reports and accounts and Key Information Document for details of the risks and charging structure. Please note charges can be taken from capital, which increases income but reduces the potential for capital growth.

Performance

The trust has performed well over the manager’s tenure and is ahead of the FTSE All Share index. It has also increased the annual dividend every year since 1973, this 50 year record is one of the longest records of any UK equity income investment trust. In the trust’s last financial year, the dividend paid to investors increased by 1.5p to 37.5p per share, an annual increase of 4.2%. All investments and any income they produce can fall as well as rise in value, so investors could get back less than they invest.

Over the trust's last financial year to the end of June 2023, its net asset value (NAV) rose by 8.8%, this was ahead of the FTSE All Share index return of 7.9%. However the trust’s share price return did not keep up with the increase in the trust’s NAV, only rising by 4.9%. Over the year, industrial manufacturer VAT group and software business Sage Group were among the trust’s strongest performers. The trust’s positions in real estate business Watkin Jones and insurer Direct Line were among the largest detractors from performance as higher inflation and rising interest rates posed headwinds.

At the time of writing the trust trades at a discount of 8.56% and has a dividend yield of 4.61%, although remember yields are variable and aren’t a reliable indicator of future income.

Past performance is not a guide to the future. Source: *Lipper IM to 30/09/2023.

Find out more about Murray Income including charges

Murray Income Key Investor Information

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