Fund of the week ‘Hundreds of firms have cut divis – we won’t cut ours’

Charles Luke of Murray Income tells Marianna Hunt how he intends to maintain the investment trust’s 46-year record of increasing its dividend

Investors who seek income have had a torrid year so far as once reliable firms such as Lloyds and Royal Dutch Shell have slashed dividends. While British companies are predicted to pay out 40pc less to investors this year, the £582m Murray Income Trust has avoided the worst of the cuts and expects the income from its holdings to fall by just 15pc.

Since the start of the year the fund has lost about 13pc of its value while British stocks as a whole have dropped by 18pc. Its manager, Charles Luke, tells Telegraph Money how he plans to maintain the trust’s 46-year streak of growing its dividend and why he’s concerned about a shortterm government spending splurge.

WHO IS THE FUND FOR? It’s for conservative investors who want to avoid losing money while benefiting from regular income and growing the value of their savings over time. They should be in it for the long term: a few years or more.

HOW DO YOU PICK STOCKS? First we try to find good-quality companies. They should have a competitive advantage over their rivals, operate in an industry we like and have cash in the bank.

There should be an experienced management team that is incentivised in the right way.

We also check for any potential environmental, social and governance (ESG) issues. We then look at its share price to check we’re not overpaying.

WILL YOUR DIVIDEND GROW THIS YEAR? We hope so. We’ve fared better than most funds and only expect our dividend income to drop by 15pc.

In previous years we’ve made up any shortfall for investors by using the fund’s cash reserves and are looking to do the same this year.

Our track record is very important to us.

Charles Luke

Aveva — Aveva is one of the few really world-class software companies in Britain. It has a competitive edge over its rivals and the potential to expand further overseas. It also has strong cash reserves and growing revenues. The company has more than doubled in value since we bought it in 2017. Its software is used in industries from chemicals to mining.

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HOW HAVE YOU AVOIDED CUTS? We have less exposure to oil companies and banks, which have made some of the biggest cuts. That’s because we like to spread our risk and aren’t certain about the future of oil.

A significant part of the fund is invested in consumer goods and healthcare companies, which have done well. The types of companies we own, which are well run and have plenty of cash, have been less likely to cut their dividend.

HOW DO YOU MANAGE RISK? We look for quality companies that could survive a crisis and make sure we don’t have all our eggs in one basket.

We spread the portfolio across different sectors and don’t hold more than 5pc of the fund in one company. We can also invest up to 20pc overseas, which means we are more diversified than most British income funds.

WHERE ARE YOU SEEING OPPORTUNITIES? In the initial coronavirus market sell-off we bought a number of good companies that had become very cheap. These included Fever-Tree, the drinks firm, and Dechra Pharmaceuticals, which makes veterinary products.

We also added to our holdings in logistics companies such as LondonMetric. We believe they will be boosted as businesses increasingly move online during lockdown.

ARE YOU PREPARING FOR A RECESSION? We think we’re already in one and it will last two to three years.

The companies that will do well in a recession are those that have already done so in the year to date: goodquality companies with little debt.

WHAT GOVERNMENT DECISIONS WOULD MOST CONCERN YOU? Things that would boost productivity over the long term, such as spending on infrastructure, education and broadband, would be a good sign. Simply giving people some immediate cash would be a warning flag.

WHAT HAVE BEEN YOUR BEST AND WORST INVESTMENTS? The best would be Unilever. We’ve held it since 2006 and it has more than quadrupled our money.

The worst was Provident Financial. We had owned it for a long time, then three years ago it issued a profit warning and its share price fell by 60pc in a day. It was embroiled in a scandal at the time.

We sold out and it went on to fall even further, but we still lost a lot of money.

What £1,000 invested in 2006 would be worth now

DO YOU HAVE YOUR OWN MONEY INVESTED IN THE FUND? Yes, plus my six-year-old son’s junior self-invested personal pension.

HOW ARE YOU PAID? A salary plus bonuses based on the fund’s performance.