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7. Uncovering Trusts - Murray Income Trust (MUT)
84 Plays6 months ago
In this episode, Edison analyst Joanne Collins discusses Murray Income Trust, which invests in high-quality, mainly UK-listed stocks, outlining its long term performance record and the rationale for holding some overseas stocks. The episode highlights the Board's commitment to maintaining the Company's 50 year track record of continuously rising dividends and explains why the managers are confident about the outlook for the sector and the Company.
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About Uncovering Trusts
The Uncovering Trusts podcast is run by Edison analysts and released every two weeks. Subscribe to hear analyst talk about how investment trusts maximise returns while managing risks for investors.
About Edison
Edison is a content-led IR business. We believe high-quality investment content should inform all investors, not just brokers. Our mission: engage and build bigger, better-informed investor audiences for our clients.
Edison covers 50+ investment trusts. Read about them here: www.edisongroup.com
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Transcript
Podcast Introduction
00:00:04
Speaker
Welcome to Uncovering Trusts, a podcast by Edison Group, a content-led IR business integrating analyst content, digital targeting and investor engagement. Each episode will uncover the distinct features and latest developments of a selected listed investment company. So tune in to find interesting investment ideas and to stay on top of what is happening in the investment company sector.
Overview of Murray Income Trust
00:00:28
Speaker
I'm your host, Suki Thompson, and today I'm joined by Joanne Collins, an analyst at Edison Group, who will talk about Murray Income Trust, known by its ticker, MUT. Joanne, thanks for joining us today. Hi, Suki. Thanks for having me. Please can you start by providing a high-level introduction to Murray Income Trust for those listeners less familiar with the fund?
00:00:50
Speaker
Yes, of course. The trust invests in high quality, mainly UK listed stocks such as Unilever, AstraZeneca, Diageo and BP, although usually about 15% of the portfolio is comprised of overseas names. It aims to produce a high and growing income combined with capital growth, and it has achieved both its dividend and capital growth objectives over the long term. So which investors are likely to find the trust most appealing?
00:01:19
Speaker
I think the clue might be in the name. Murray Income is most likely to attract the attention of investors seeking a regular, competitive and rising income as they will appreciate the Trust's commitment to annually increasing dividends. It may also appeal to those seeking exposure to a diversified portfolio of high-quality, resilient and mainly UK stocks. The Trust is diversified by sector and by income source
00:01:44
Speaker
80% of all portfolio income is sourced from abroad, from both its UK companies overseas sales and from the earnings of its holdings in non-UK businesses. This provides significant protection from any deterioration in the UK's economic climate.
Investment Strategies and Diversification
00:02:02
Speaker
Speaking of portfolio revenues, I understand that MUT has another means of diversifying its income source.
00:02:08
Speaker
Yes, it does. It has a program of option writing, which provides a further modest uncorrelated supplement to portfolio revenues. And importantly, income from these transactions also gives the managers scope to invest in companies with lower starting yields, but attractive dividend and capital growth prospects. Income from option writings total 1.7 million in the first six months of this fiscal year, representing about 10% of total portfolio income over the period.
00:02:36
Speaker
Recent positions have included calls on Experian and Microsoft. Income is clearly an integral part of the trust, so let's now focus on Murray Income's dividend history. Sure.
00:02:49
Speaker
The trust boasts 50 years of continually rising dividends. It paid a dividend of 37.5 pence per share in its last fiscal year. This is up from a dividend of 36 pence in the previous year. And the board has indicated that dividends will rise to at least 38 pence in fiscal year 24. This represents a prospective yield of 4.5%. The board has also reconfirmed its intention to maintain annual dividend increases
00:03:18
Speaker
as a priority in the future.
Performance and Historical Context
00:03:21
Speaker
And I believe there has been a recent change in the way the trust pays out is dividend.
00:03:26
Speaker
Yes, that's correct. Late last year, the company decided to try and smooth its quarterly dividend payments to allow shareholders to access dividend income more quickly and more evenly throughout the year. In effect, this means that the first three dividend payments for this year will rise to 9.5 pence per share compared to last year's first three interim dividends of 8.25 pence per share.
00:03:50
Speaker
and the fourth dividend for the year will be lower than last year's 12.75 pence per share. However, the board expects the fourth dividend for this year to be at least 9.5 pence. This will give an expected total for the year of at least 38 pence, representing a rise of at least 1.3% on the fiscal year 23 dividend. And how about Murray Income's performance record?
00:04:15
Speaker
It's good, long term. The trust has delivered absolute gains and outperformance of the market over the longer term, returning an annual average of 6.1% in NAV terms over the 10 years to 31 March 24, versus an average market gain of 5.8% per annum.
00:04:35
Speaker
However, the trust quality bias has meant that more near-term performance has lagged the market slightly, as value stocks have outperformed. It returned a respectable 7.8% over the year to 31 March, although the benchmark return was somewhat higher at 8.4%. The share price return over this period was 2.4%, widening the trust discount to NAV.
00:05:01
Speaker
It's important to note that Murray Income has done well compared to its peers in the AIC equity income sector. It has outperformed the average sector return over the short term and the longer term and is ranked in the top three performers over 10 years.
International Diversification
00:05:17
Speaker
Let's talk a little bit about how Murray Income compares to its peers.
00:05:23
Speaker
It's one of 17 members in its AIC sector, although it's differentiated from many of its peers in several respects. While Murray Income is focused on companies with high quality characteristics, several of its peers have more value-oriented investment approaches. The Trust portfolio is more diversified than some across sectors and stocks and geographies.
00:05:47
Speaker
as around 20% is invested in mid-cap stocks and it can invest up to 20% in international names. Murray Income's merger with Perpetual Income and Growth Trust in November 2020 doubled its market capitalisation, making it the fifth largest fund in this sector. And its ongoing charge is the second lowest amongst peers following the merger, reflecting the benefits of its scale.
00:06:13
Speaker
Clearly, MUT's overseas holdings are a differentiating factor. Could you tell us a bit more about why a UK focused trust might want to hold onto overseas stocks? Sure.
00:06:26
Speaker
As I mentioned, Murray Income has scoped to invest up to 20% of gross assets in overseas listed companies. The idea is that this provides the managers with flexibility to access industries not available within the UK market and also to diversify income and risk and to invest in better quality proxies for UK listed companies. As a result, the trust owns some of the world's leading companies with great long-term growth prospects in their respective industries.
Market Challenges and Optimism
00:06:54
Speaker
Stocks held include Total Energies, Microsoft, Novo Nordisk, and Nestle. These holdings have been performing strongly, so the managers have increased exposure to overseas names, and they have recently added a position in MasterCard, and the percentage of foreign stocks has risen from 15% to 19%. Thanks. And what challenges does the trust currently face?
00:07:20
Speaker
Well, I would say that the main challenge is that the UK market is currently out of favor with both domestic and foreign investors. But this does mean that UK equities are attractively priced.
00:07:33
Speaker
What other factors, aside from price, might attract investors back to this market? It's possible that market sentiment may improve if the Bank of England begins to cut interest rates. Investors will also certainly welcome any signs that the economy is gathering momentum. And once the forthcoming UK general election is over, political uncertainty is likely to diminish. So this could also help.
00:07:57
Speaker
as would a pickup in M&A activity, as this would send a clear signal to the broader investment community that some major investors see value in the market. And how are the trust managers feeling about the outlook for the trust? Its managers are optimistic about the prospects of both the UK market and the trust over both the short and the longer term, even though the near-term economic outlook is rather lackluster.
00:08:24
Speaker
In the short term, the managers expect the trust's quality focus to protect returns, as companies with pricing power, high margins and strong balance sheets are best placed to weather challenging economic conditions while continuing to generate income.
00:08:40
Speaker
Looking further ahead, the managers argue that the UK market now looks very cheap compared to its own history and relative to international markets. And they believe that at some point, investors will come to appreciate the value it offers. To support this view, they cite the UK market's 4% dividend yield, which is certainly appealing versus regional equity markets. They also expect dividends and earnings to grow strongly this year, despite subdued economic growth.
00:09:09
Speaker
In short, they believe the case for investing in the UK market is compelling and will eventually tempt investors to return. And they expect their quality holdings to do better than others as and when this tide turns.
Long-Term Trends and Strategies
00:09:23
Speaker
Do you see any other factor that might support Murray Income Trust's longer-term prospects? Yes, I do. Its portfolio has exposure to several long-term structural trends
00:09:34
Speaker
such as ageing populations, digital transformation, the transition to renewable energy and rising global wealth. These trends should provide major tailwinds for earnings and dividend growth over the medium term. Finally, what about the Trust's discount?
00:09:52
Speaker
Its discount is currently around 10%, double its long-term average. The board has responded to this development by stepping up shared buybacks to support the share price and reduce discount volatility. These buybacks should over time have a favorable impact on the discount. So too should any sustained improvement in performance and any improvement in investor sentiment regarding UK equities.
Conclusion and Further Exploration
00:10:18
Speaker
There are therefore several reasons to suggest that the trust discount may, in time, move back towards its long-term average. So for those who share the manager's confidence in the longer-term prospects of the UK market and the portfolio's holdings, now might actually be a good time to gain exposure to the regular income, capital growth and relative value offered by this trust.
00:10:41
Speaker
Thank you, Joanne. I think you've given us a great rundown on what the trust has to offer. You've been listening to Uncovering Trusts, a podcast by Edison Group. If you would like to find out more about Murray Income Trusts and other investment companies we cover, please visit EdisonGroup.com. Thanks.