Murray Income Merger: The Manager's View

VIDEO: Fund manager Charles Luke reveals how he will merge the Perpetual Growth & Income trust with his Murray Income investment trust

Holly Black 19 October, 2020 | 10:19AM
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Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Charles Luke. He is Manager of the Murray Income Investment Trust. Hello.

Charles Luke: Good morning.

Black: So, you want to just tell us briefly what the trust does?

Luke: Yeah. So, the aspiration for Murray Income is to do three things – to generate a high income and to deliver income and capital growth. I think the best way to think about the investment proposition is through three words. So, we want to be dependable; we want to be diversified; and we want to be differentiated.

Black: Okay. So, Charles, there's something quite big happening with Murray Income at the moment and that is that you are merging with the Perpetual Income and Growth Trust. This doesn't happen that often in the investment trust world. And these are two quite large trusts. So, how are you going to manage this merger?

Luke: Yeah. Well, the Perpetual Income and Growth Trust is at present being molded into a shape where it can neatly dovetail into Murray Income, so there won't be any major changes, probably no changes after that happens. And I think as well, in terms of our patient buy and hold investment approach and focus on good-quality companies, that is well suited, very well suited to managing a larger fund.

Black: And so, what would your message be to investors who might be concerned about this merger, particularly if they're coming from the Perpetual Trust that's being rolled in, they might be worried that things are going to change?

Luke: Yeah. So, I'd say absolutely no reason to worry or nervous. We have a very experienced Board of Directors and we have a great team. We have a robust, patient buy and hold investment approach which has been tried and tested over time. And I think most importantly, the portfolio is jam packed with a diversified selection of good-quality companies. So, no reason to be nervous at all.

Black: Okay. So, you are an income trust. I think it would be remiss of me to not ask you what the outlook for income and dividends is at the moment. It's been a bit of a crazy year.

Luke: It's certainly been a very crazy year. And in general, I'm not particularly optimistic about the outlook for income. I think a lot of companies that have been over-distributing, they now have different priorities, particularly in terms of paying back debt, but I think what has been noticeable is that the focus on good-quality companies does provide significant resilience in this very challenging period. So, for the market as a whole, we think that income will fall by around about 40% this year. But for Murray Income's portfolio, that's around about 15%. So, the quality and resilience of the portfolio has really come through from an income perspective. And those companies that have suspended their dividends in Murray Income, we think will return very quickly to the dividend list and we're beginning to see that in terms of the likes of Close Brothers and Mondi and XP Power. And actually, the dividend recovery in Murray Income is happening faster than we expected.

Black: And what does that mean for your investors? Because obviously, one of the benefits of a trust is you can keep some money in reserve to make sure you can keep paying out dividends. Will you have to dip into those reserves this year?

Luke: Yeah, so the likelihood is that we will do it and we did do last year as well. But the good thing, as you said, about an investment trust is that we do have that rainy-day cushion. And if there's ever a time to use it, that's now. So, the likelihood is, yes, we will have to continue to dip into reserves for a little while yet.

Black: Charles, thank you so much for your time. For Morningstar, I'm Holly Black.

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Holly Black  is Senior Editor,