Murray Income cuts fees as announces 44th year of dividend increases – Murray Income Trust reports that, for the year ended 30 June 2017, the company generated a Net Asset Value Total Return of 16.7%, a little bit behind the 18.1% return from the All-Share Index. The discount narrowed and that helped produce a share price return of 23.5%. The Board is recommending a final dividend of 11.75p, which makes a total for the year of 32.75p, an increase of 1.6%. If approved, this will constitute 44 years of consecutive dividend increases.
The chairman points out that the fund has been evolving: “In recent years, there have been two significant changes of emphasis in the portfolio, both achieved incrementally. The first was the build-up of overseas-listed holdings. The principal reason behind this was to improve the industrial and geographical diversity of the capital and income, which proved to be a dramatic benefit in the first half of this financial year as Sterling fell sharply. The second, more recent, change has been the increase in mid and small capitalisation company holdings. Four years ago these accounted for less than 10% of the portfolio but at this financial year end were over 24%. In the latest year such additions have included Assura, Big Yellow, Croda, Manx Telecom and Workspace. Often the initial yields of these companies are lower than the existing portfolio average, but they typically have better prospects for growth than higher yielding mega caps which can be constrained by the overall economy and by high dividend payout ratios.”
The Board has negotiated a reduction in the management fee, to take effect from 1 January 2018, under which Aberdeen will be entitled to an annual fee, calculated on net assets, of 0.55% up to GBP350m, 0.45% between GBP350m and GBP450m and 0.25% over GBP450m. At year end net asset value levels, this would have equated to a fall in the blended fee rate from 0.51% to 0.47%.
Charles Luke’s manager’s report says that, over the year, the poorest performing area of the market was the telecoms sector. This was principally due to the disappointing performance of BT (not held in the portfolio) which suffered from accounting improprieties in its Italian business and a worsening in the outlook for its UK public sector and international corporate markets customer base. The utilities sector also performed poorly, a function of concerns around rising bond yields and greater political interference. Conversely, the mining sector performed very strongly as commodity prices rebounded on the prospect for better global growth. The banks sector also generated significant returns as the domestically-focused banks bounced back following the falls after the European Union referendum and the more international banks benefitted from higher US interest rates and an improvement in the global economy.
From a size perspective, in a reversal of fortune compared to the prior year, the FTSE 100 Index underperformed the Mid 250 and Small Cap indices rising by 16.9% on a total return basis compared to 22.2% and 28.5% for the Mid 250 and Small Cap indices respectively. Performance reflected the rebound in domestically-oriented companies following the sharp falls in the aftermath of the European Union referendum result.
Looking specifically at the fund, stock selection and asset allocation were both marginally negative. There were a number of companies that demonstrated substantial share price increases. The two largest banks holdings, Nordea and HSBC both performed very strongly aided by an improving economic backdrop. Strong demand for its cloud operations helped Microsoft to perform well. XP Power’s exposure to recovering capital equipment markets coupled with new design wins entering production and Sterling weakness resulted in an impressive uplift in profits. The successful integration of BBA Aviation’s acquisition of Landmark led its shares to perform well. Finally, continued progress from Prudential resulted in a sharp uplift in its share price.
On the other hand, there were two principal disappointments. Firstly, Capita, which performed particularly poorly in the first half of the year before partly recovering. The company reported delays in client decision-making, contract issues and a weaker than expected performance in a couple of the company’s trading businesses. Changes to the management team and business structure coupled with a disposal programme to improve the balance sheet have put the company on a firmer footing. The second disappointment was Pearson which issued a profit warning in January together with a reduction in its dividend for its next financial year. The company has suffered primarily due to weakness in its North American higher education courseware business given a mix of lower enrolments and increased textbook rentals. Although trading conditions still remain challenging for Pearson, the company has taken steps to sharpen its focus and the prize for successfully negotiating the passage to a digital education company remains substantial.
MUT : Murray Income cuts fees as announces 44th year of dividend increases