Charles Luke, manager of Murray Income investment trust, talks to Tom Bailey about some of the shares the trust has recently been buying and selling.
As the name suggests, Murray Income trust focuses on dividend paying companies, aiming to provide shareholders with strong, reliable income growth; it prides itself on the fact that it has a 44-year track record of dividend growth. The current yield is around 5.1 per cent. The trust attempts to provide income primarily through investing in UK-listed shares, although it is able to hold up to 20 per cent of its portfolio outside of the UK.
Fund manager Charles Luke explains that four broad characteristics of the trust help it to achieve its goals. First, the trust invests in good quality companies. A quick look at Murray Income’s top holdings confirms this: Unilever sits at the top of the portfolio, alongside Astra- Zeneca, British American Tobacco and Royal Dutch Shell, among other blue-chip businesses.
The second characteristic is the trust’s commitment to strong, safe and growing dividends. ‘We like shares to have above-average yield, above-average income growth and security,’ says Luke. The third characteristic is the trust’s ‘quite conservative management’, as it ensures that its portfolio has no more than 5 per cent of income or capital coming from any one company.
The trust also has relatively low gearing – currently it stands at around 6 per cent. And fourth, it aims for good exposure to mid-cap companies with greater potential for growth.
Kone (HEL: KNEBV)
In February of this year, the trust purchased shares in the Finnish company Kone, a global leader in the lift and escalator industry. ‘We think it is a high-quality company, in an attractive market with good structural growth,’ says Luke.
While Kone sells lifts and elevators, the company’s core business is in the maintenance and servicing of elevators when they break down. Key for the company is that it ‘has a lot of density, it has lots of customers in the same geographical areas’, notes Luke. This ensures it can provide manpower to fi x broken elevators or lifts quickly.
Though the company has a sizeable presence in Europe, it is also a market leader in China. Alongside this, it is partly family-controlled. Antti Herlin of the famous Finnish Herlin family still owns more than 50 per cent of shares in the company, giving him overall control. This, says Luke, gives the business a ‘long-term horizon’. An added positive for the fi rm cited by Luke is its net cash balance sheet.
Murray Income Trust purchased Kone at around €43 in February. Its share price is around the same (as of the end of May); however, it yields around 3.8 per cent.
Big Yellow Group (LON: BYG)
‘The reason we like this company is because we think it has a strong brand,’ says Luke. Anyone driving through the south-east of England is likely to spot the recognisable buildings dotting the landscape.
With demand for storage growing, and the supply of new storage spaces lagging, Big Yellow Group is a good position right now. In particular, says Luke, it is set to benefit from the continued growth of e-commerce. Small online retailers that make use of BYG facilities as small warehouses now account for about a third of the company’s business.
Another added benefit of the fi rm is that it has, in Luke’s words, ‘low obsolescence risk’, meaning there is little risk of its assets becoming obsolete. ‘Storage facilities will look very similar in 20 years,’ he says.
Big Yellow’s shares yield about 3.5 per cent. However, the fi rm is currently a hold and not a buy due to its share price; it is currently trading on a price-to-earnings ratio of about 20. The share was first purchased at £7.20 in February 2017. At the end of May 2018 it was trading at around £9.30.
Sage Group (LON: SGE)
Sage is a British software company with a history stretching back to 1981. ‘It is a good-quality company with a quality management team,’ says Luke. However, at the end of May 2018, he sold the trust’s stake in the fi rm, citing what he foresaw as a potential ‘difficult transitional period’.
The risk Luke has been concerned about is Sage’s attempt to move its services to the cloud. Software fi rms are moving away from physical storage, and so too is Sage. However, as Luke notes, ‘moving to the cloud for Sage is harder, due to its legacy products.’ Moving these products to the cloud is not simple and is likely to be a ‘bumpy process’, he believes. The company also has some debt as a result of its acquisition of Intacct last year.
The trust originally purchased the holding in 2010 for about £2.50 per share. At the end of May, around the time Luke sold, shares in Sage were trading at about £6.60.