Best in Class: Murray Income Trust

It has taken a decade, but the end of 2020 finally saw a twist in the growth-value style debate.

A world of low interest rates has meant growth has been the only game in town until recently, but value has finally had its much-anticipated rally, confounding those critics who felt it was an obsolete style of investing.

There are two schools of thought here. One is this will be a short-lived rally while the global economy recalibrates.

The second is that growth has dominated for so long that the unwinding in markets – as a result of inflation and higher GDP growth – could see value strategies significantly outperform in the years ahead, particularly in a market like the UK where value companies are more prevalent.

Choosing the right path is not so easy. Perhaps the best solution is to ignore all the noise and focus on quality – and that is what this week’s Best in Class strives to do.

Murray Income Trust manager Charles Luke focuses on building a portfolio that is “dependable, diversified and differentiated”, with the aim of producing performance that is not dependent on any one economic scenario.

He adopts a strict bottom-up investment process based on a disciplined evaluation of companies through meetings with management. Stock selection is the principal source of added value, with quality and price both assessed.

Luke has managed the trust since 2006 and is part of the 15-strong UK equities team at Aberdeen Standard Investments, which covers the FTSE 350.

Investment ideas are considered against a variety of factors. These include: the attractiveness of the industry a company operates in, the durability of the company’s business model, its financial strength, management capabilities, and environmental, social and governance factors. This is supported further by company meetings.

The team sees high-quality companies as having fewer tail risks and a greater margin of safety; producing less volatile earnings streams; and being better able to navigate an uncertain future while capitalising on opportunities to create value.

This helps the team target undervalued companies with high margins and return on equity, low levels of net debt and above-average earnings and dividend growth potential.

The final portfolio typically holds between 50-70 companies. Turnover is low, with the average company held for five years.

The trust also has a 30-40 per cent allocation to UK mid-caps, an area Luke says has been “overlooked and under-researched” offering opportunities for the team to tap into.

He acknowledges there will be points where value does outperform quality companies – such as we have seen following the vaccine efficacy announcements in the UK.

But he says it is important to remember that those who have benefitted from the value rally are also likely to have held those companies during those troubled periods.

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