Murray Income (MUT) has a announced its annual report for the 12 months to 30 June 2024. The company delivered a NAV total return of 9.9% and a share price total return of 7.6%, causing the discount to widen to 11%. Dividends per share were 38.5p for a yield of 4.5%. The benchmark total return for the period was 13%. Performance benefited from good stock selection in the consumer discretionary and telecommunications sectors and the overweight exposure to the industrials and technology sectors. This was offset by negative stock selection in the industrials, financials and consumer staples sectors.
Discussing the period, director Charles Luke commented:
“The UK equity market, as measured by the benchmark FTSE All-Share Index, rose by 13.0% on a total return basis over the year. Investor sentiment around the timing of central banks starting interest rate cuts continued to drive market performance. Optimism that interest rates across major economies had peaked began to build in November, leading to a market rally at the end of 2023. By the start of the new year, that optimism wavered as central banks suggested cuts might come later than expected. This concern was especially strong in the UK when December inflation was higher than expected, causing the UK stock market to end January lower. By March, central banks in the US, Europe, and UK opened the door to rate cuts, boosting markets and leading to positive performance through May. Global equities kept rising in June, helped by positive corporate results and falling inflation. US stock indices hit new highs, with the tech sector strong and artificial intelligence driving sentiment. However, equity indices in the UK and Europe pulled back due to political uncertainty before July’s elections in the UK and France.
“The UK economy entered a technical recession in the second half of 2023, with a 0.3% GDP decline in the fourth quarter marking the second quarter of negative growth. Since then, there have been signs of improvement in the first half of this year, with GDP growth of 0.7% and 0.6% in the first and second quarters, boosted by the services sector. The UK’s unemployment rate dropped to 4.2% in the three months to June, down from 4.4% the previous quarter. Annual earnings growth, though still above inflation, slowed to the lowest rate in almost two years by June.
“Inflation continued to decline, with the Consumer Prices Index (CPI) falling from 6.8% in July 2023 to the Bank of England’s (BoE) target of 2% in May 2024, the lowest in almost three years, though it ticked up to 2.2% in July. The BoE now expects inflation to rise slightly in the second half of 2024, but interest rates were cut by 0.25% to 5% in August, with further cuts expected later in the year.
“These inflation trends have been similar in the US and Eurozone. The US Federal Reserve has held rates steady since last summer, while the European Central Bank began cutting rates in June. Economic data from the US has generally been strong, though with signs of slowing growth. Oil prices ended the year moderately higher, rising on OPEC production cuts and the Israel-Hamas conflict, before falling on concerns about slowing global growth and OPEC’s plans to unwind some production cuts in the second half of 2024.
“In the UK market, the more domestically focused FTSE 250 Index slightly outperformed the larger, internationally exposed companies in the FTSE 100 Index. From a factor perspective, ‘value’ stocks outperformed while ‘growth’ and ‘quality’ underperformed on a relative basis.
“Most sectors of the UK equity market delivered positive returns over the year. The financials sector performed strongly, benefiting from the prospect of higher interest rates for longer. Although small in the UK market, the technology sector had another strong year, mainly due to specific stocks. More defensive areas like consumer staples, utilities, and healthcare lagged behind more cyclical, economically sensitive sectors like industrials, energy, and real estate.”
Regarding the outlook, he continued:
“The portfolio is aligned to compelling long-term trends such as an ageing population, the increasing wealth of the middle class, the digital transformation and energy transition. We identify and invest in high quality companies capable of delivering appealing long term earnings and dividend growth at a relatively modest aggregate valuation. These companies demonstrate high returns on capital, pricing power, attractive margins and strong balance sheets. We also believe a focus on quality companies should provide both earnings resilience and less volatility which are helpful in underpinning the portfolio’s income generation.
“We expect the trajectory of inflation data and the associated path of monetary policy will continue to influence markets over the next year. Recent data points, particularly relating to the labour market, have brought into question the extent to which the US economy will achieve a ‘soft landing’ but our economists still believe this to be the case. We expect the rate cutting cycles that have been started by the BoE and ECB to continue with the Federal Reserve reducing rates imminently. Political risk remains elevated through 2024 with the US election in November, while following the election of a Labour government in the UK in July we do not expect significant changes to the growth outlook in the near-term but policy could increase growth potential in the longer-term.
“Many of the valuation characteristics highlighted last year remain in place. Although perhaps a little less so than 12 months ago, the valuations of UK-listed companies still remain attractive on a relative and absolute basis. Investors are benefitting from global income at a discounted valuation. Moreover, the dividend yield of the UK market remains at an appealing premium to other regional equity markets.
“Perhaps, unlike last year, the political environment in the UK feels more settled which may encourage overseas investors to look at the UK market with greater confidence.”
MUT: Solid year for Murray Income, although stock selection sees bechmark drag
