Recent half-year results from Murray Income (MUT ) underline the buying opportunity highlighted in last week’s Trust Watch. With the shares trading on a 10% discount and earning three-quarters of revenues outside the UK, the £891m, 5%-yielder offers what its Abrdn managers Charles Luke and Iain Pyle call ‘global income at a knockdown price’.

True, Murray Income did underperform in the six months to 31 December, with the portfolio returning 4.5% against the FTSE All-Share’s 5.2%, hindered by an underweight to banks and financials.

Unfortunately, that’s also repeated over three years. The managers’ preference for ‘quality’ stocks with strong market positions and balance sheets has seen the portfolio outpaced by less expensive ‘value’ or recovery stocks.

Net asset value (NAV) has grown 21.6% since the start of 2021, behind the All-Share’s 28.1%, but the shares have risen just 17.4% as the discount – or gap to NAV – has widened after the initial strong recovery from the Covid crash four years ago.

However, over five years, the trust has beaten its benchmark, which is better news for former Perpetual Income & Growth shareholders, who threw in their lot with the trust in November 2020. Over the period, Murray Income generated a total 46% NAV, or portfolio, return, with 47.1% for shareholders against an All-Share return of 37.7% at the end of last year.

Cheap UK needs a catalyst

With the UK stock market trading just over 10 times earnings, which the managers say other than the 2008 financial crisis is the lowest point for 30 years, the hope is that a reversal in some of the interest rate hikes up to last August will be the catalyst for a recovery.

As Peter Tait, the trust’s new chair, says: ‘The anticipation of falling UK interest rates later this calendar year could attract the attention of potential investors, particularly given the appealing combination of a market dividend yield of 4% and forecast dividend and earnings growth in 2024, according to a Bloomberg consensus of estimates in January of 9.2% and 10.1%, respectively, despite the lacklustre outlook for overall economic growth,’ which the managers believe could see the UK notch up zero growth this year.’

It’s only fair to point out that the same macro-easing argument could apply to Murray Income’s rivals. Our Trust Watch ‘cheap’ list last weekend was littered with UK equity income trusts standing on wider-than-average discounts.

Currently, according to Deutsche Numis data, on a relative basis Merchants (MRCH ) is the cheapest of the lot on a 3% discount, followed by Temple Bar (TMPL ) on 8%, Abrdn Equity Income (AEI ) on 7.6%, then Murray Income on 10.5%, backed by City of London (CTY ) on a 3% discount.

All of these deserve closer attention, we’d argue, the point being their sector derating surely says more about the continuing exodus of UK investors from the domestic market than it does about any individual failings or issues with these listed funds.

Looking overseas

Switching back to Murray Income, which marked its centenary last year, a commitment by Abrdn to invest six months of fees into its shares could help support the trust’s rating while it waits for a turnaround in market sentiment.

Meanwhile, with the UK looking unloved, Luke and Pyle are making full use of the trust’s ability to hold up to 20% in overseas stocks.

Mastercard, the New York-listed payment technology group, was added to the portfolio due to its ‘strong competitive positioning and high barriers to entry, as well as having multiple long-term growth opportunities’, the managers said.

It stands alongside other international stocks including Citywire Elite Companies + rated Accton Technology, AAA-rated Novo Nordisk'>Novo Nordisk, and A-rated VAT Group'>VAT Group, which all rallied by more than 20% in the half-year period.

In the UK, engineering group Rotork (RTK), which is + rated by Citywire, was brought into the portfolio due to its ‘underappreciated growth opportunities’.

‘Drivers of growth include its electric actuator product, used to reduce methane emissions in the oil and gas sector, which is increasingly a priority as the industry looks to meet emission reduction targets,’ said Luke (pictured above) and Pyle.

Stocks dropped include chemicals group Croda (CRDA) on its high valuation and deteriorating long-term strategy, while trading backdrop concerns saw building materials group Marshalls (MSLH) removed, and Citywire A-rated renewable power generation company Drax (DRX) was sold due to ‘increasing uncertainty around the long-term business model’.

Turning to dividends, despite earnings dipping from 16.3p to 14.2p per share over the last year, the Association of Investment Companies’ ‘dividend hero’ is confident it will deliver its 51st consecutive annual increase in the quarterly payouts for the financial year to 30 June, although it may be a small rise.

In a move to smooth out the payments, the board has announced the first three payments will be 9.5p per share, up from 8.25p in the previous year. That means the final payment will be lower than last year but not less than 9.5p, giving a minimum for the year of 38p compared with 37.5p in 2022/23.

‘Buy’ says Brierley

Alan Brierley, an analyst at Investec, the trust’s corporate broker, is positive, unsurprisingly. However, there is no faulting the logic of his ‘buy’ recommendation with the shares on a ‘multi-year’ wide discount.

‘The managers have constructed a portfolio of what they regard as high-quality, predominantly global businesses capable of delivering appealing long-term earnings and dividend growth at a modest valuation.

‘They believe quality companies, with pricing power, high margins and strong balance sheets, are better placed to navigate a more challenging economic environment and emerge in a strong position.

‘Furthermore, these quality characteristics are helpful in underpinning the portfolio’s income generation.’