Murray Income highlights ‘double discount’ as poor run persists

Murray Income may have extended its run of poor performance, but manager Charles Luke says the doubly discounted fund is a better buy than ever.

Charles Luke, manager of Murray Income (MUT ), believes his portfolio of out-of-favour quality stocks offers investors a ‘double discount’ following an extended run of disappointing performance.

He said investors now have a rare opportunity to buy a discounted portfolio of high quality companies in a market that is itself trading at a significant discount to global equities.

His comments follow a challenging period for the £929m trust, which saw its net asset value (NAV) slide 2.1% over the second half of 2024. This compares to a 1.9% rise by the FTSE All-Share index.

The latest results mean the trust, run by Aberdeen (which has restored the vowels to its name), has underperformed in three out of the last five calendar years.

Performance was blamed on Luke’s preference for ‘quality’ stocks, which refers to companies with strong financial fundamentals and resilient business models. This investment style has disappointed in recent years as investors flocked to ‘value’ stocks, where companies trade at a discount to their intrinsic value.

Luke said real gilt yields were another headwind to performance over the last three years. Nevertheless, he was keen to say he strongly believes in the potential of the companies in the portfolio to outperform over the longer term.

Over three years the NAV has reduced 25.6%, which compares to a 35.7% gain by the FTSE All-Share.

There were stock-specific hiccups over the half year, the largest was Close Brothers (CBG), whose shares tumbled 44.2% after a UK Supreme Court judgement on historic car finance mis-selling claims.

It was found that car dealers had a duty to customers to disclose commission payments from lenders, and lenders were liable for non-disclosure. Close has been granted permission to appeal the judgement.

Also, the trust’s 21% allocation has so far weighed on performance. Novo Nordisk’s shares fell 39.2% following disappointing trials for its weight-loss product CagriSema, while Swiss vacuum valve maker VAT lost 32.7% due to worries about the impact of export restrictions to China.

Luke’s new position in Dutch-listed semiconductor equipment group ASML also disappointed, as it scaled back 2025 guidance due to delayed orders and weakness in non-artificial intelligence (AI) markets.

However, he said ASML’s ‘extremely strong leadership position’ provides pricing power, high returns on capital employed, and good long-term growth visibility, benefiting from the development of AI.

Shopping for bargains

UK additions to the portfolio over the six-month period included homeware retailer Dunelm (DNLM). Luke noted its ‘strong market position and new stores and format’ that should allow it to grow its market share.

‘The company has a robust balance sheet and strong cash generation which provides for likely special dividends to enhance income,’ he said.

‘The new holding was part funded by a sale of Direct Line (DLG) where an approach from Aviva (AV) provided the catalyst to fully exit.’

Property investor LondonMetric (LMP), which has a large exposure to logistics, made a return to the portfolio, having been sold three years ago at a higher valuation.

‘We now see the valuation and dividend yield as being at attractive levels and are positive on the outlook for the logistics sector, given limited new supply and strong rental growth potential,’ said Luke.

As well as recycling capital into attractive valuation opportunities, the company continued to buy back its shares, with 2.8% of the issued shares repurchased over six months, adding 0.6% to the NAV.

Over the six months the board approved further buybacks as they believe it is an opportunity to buy a portfolio of quality stocks at an attractive price, in an undervalued market.

However, the buybacks have had scant impact on the discount, which widened from 10.5% to 11.1% over the period as the shares fell 2.4%.

Today the discount stands at 10% and the trust yields 4.5%. Over the past year, Murray Income’s shares are up 8.2% which compares to a 15.1% rise by the average trust in the AIC’s UK equity income sector.

Over three years, the trust’s shares are up 20.5% versus 30.3% by the sector average.