Murray Income: November 2024 trust update

• Charles Luke is an experienced income investor having managed this investment trust since 2006

• The trust has increased its annual dividend to investors for the last 51 years, which is one of the longest records in its sector

• The trust mainly invests in larger UK companies, with some medium-sized and overseas companies.

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. Aberdeen Asset Management and Standard Life Investments merged in 2017, creating Aberdeen Standard Investments (ASI), later rebranded to abrdn.

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. This included the addition of nine new investments including international bank HSBC, UK based housebuilder Berkeley Group and paper packing solutions provider Smurtfit Kappa. An overseas listed addition to the trust was Coca Cola Europacific Partners which the manager believes trades at an attractive valuation and gives exposure to a number of high quality consumer brands. Nine investments were also sold from the fund over the year. This included chemicals business Croda, where the manager lost conviction in the company’s long term strategy, and bank Standard Chartered where the manager preferred to be invested in HSBC.

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 2024, gearing stood at 9.1%, down from 10.3% the year before. The manager can also use derivatives, which if used adds risk.

ESG Integration

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 and launched its first ethical fund in 1994. 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 its 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. The firm’s comprehensive voting policy helps to achieve consistency across all voting activity.

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 Sustainability Group, as well as specialist on-desk analysts.

The company runs several exclusions-based, sustainability focus and sustainability impact funds, which take its commitment to society, the environment, and other thematic investment goals a step further. This is not a specialist responsible or sustainably invested trust.

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. There have also been a number of fund manager departures across the business. In 2022, the UK equity investment team was combined with the European equity team which saw five individuals leave the business. We think the team work collaboratively to share research and ideas with each other, and to debate and challenge stock decisions.

Cost

The trust's ongoing charge for the year ended 30 June 2024 was 0.50%, which is the same as the previous year's charge. Investors should refer to the latest annual report and accounts and Key Investor Information for details of the risks and charging structure.

If held in a SIPP or ISA the HL account charge of 0.45% (capped at £200 p.a. for a SIPP and £45 for an ISA) per annum also applies. Our account charge doesn't apply if held in a Fund and Share Account or a Junior ISA. As investment trusts trade like shares, both a buy and sell instruction will be subject to our share dealing charges within any HL account except online deals in a Junior ISA.

Performance

The trust has delivered similar performance to the FTSE All Share index over the manager’s tenure, marginally lagging it over this period since 2006. It has also increased the annual dividend every year since 1973, this 51 year record is one of the longest records of any UK equity income investment trust. Remember that past performance is not a guide to future returns.

In the trust’s last financial year, the dividend paid to investors increased by 1p to 38.5p per share, an annual increase of 2.7%. All investments and any income they produce can fall as well as rise in value, so investors could get back less than they invest. This year’s dividend is partly funded by the trust’s revenue reserves with revenue per share coming in at 37.4p.

Over the trust's last financial year to the end of June 2024, its net asset value (NAV) rose by 9.9%, which was behind the FTSE All Share index return of 13.0%. However the trust’s share price return did not keep up with the increase in the trust’s NAV, only rising by 7.6%, reflecting a widening of the discount.

Over the trust’s financial year, its investments in pharmaceutical company Novo Nordisk and private equity business Intermediate Capital proved to be among its better performers. On the other hand, the investment in financial Close Brothers was a detractor from performance as the shares lost value when the FCA launched a review of motor finance practices in the industry.

At the time of writing the trust trades at a discount of 11.72% and has a dividend yield of 4.63%, although remember yields are variable and aren’t a reliable indicator of future income.