Edinburgh investment giant Abrdn said its £1 billion Murray Income Trust plc generated a Net Asset Value (NAV) per share total return of 9.9% for the year to June 30, 2024, underperforming the benchmark FTSE All-Share Index which returned 13%.

On a total return basis, Murray Income Trust’s share price increased by 7.6% “reflecting a widening of the discount to Net Asset Value (debt at fair value) at which the shares traded from 8.2 to 10.5% by 30 June 2024.”

The fund looks to achieve a high and growing income combined with capital growth through investment in a portfolio principally of UK equities.

The investment trust’s annual dividend increased from 37.5p to 38.5p per share, the 51st year of consecutive growth.

In his report, Murray Income Trust chair Peter Tait urged the UK Government to play a “big role” in making the UK equity market a more attractive long-term place to invest, saying there are many initiatives which can be undertaken.

“Performance benefited from good stock selection in the consumer discretionary and telecommunications sectors and the overweight exposure to the industrials and technology sectors,” said Murray Income Trust.

” This was offset by negative stock selection in the industrials, financials and consumer staples sectors.

“Turning to the individual holdings, the positions in Novo Nordisk and Intermediate Capital generated the greatest stock level outperformance, delivering 82% and 58% share price increases respectively.

“Not holding Reckitt Benckiser which is a constituent of the benchmark index also contributed positively to relative performance.

“As has been a theme in the UK market in recent years, corporate and takeover activity has been elevated. Of the holdings in the portfolio, during the year, Anglo American and Direct Line rejected approaches at a premium to the level at which the shares had been trading prior to the approach.

“The holding in Close Brothers detracted most from relative performance as its shares fell heavily when the FCA launched a review of motor finance practices in the industry.

“The company subsequently decided to suspend its dividend to conserve capital in anticipation of potential customer redress.

“Non-held Rolls Royce (which did not return to the dividend list during the year) andShell (where we prefer BP and TotalEnergies) also had a negative impact on relative return over the year.”

Murray Income Trust chair Peter Tait wrote: “… the UK Government can play a big role in creating the conditions for making the UK equity market a more attractive long-term place to invest.  There are many initiatives which can be undertaken.

“I can report that as chair of the company, I have written to Tulip Siddiq, the new Economic Secretary to the Treasury, urging her to reform the rules governing cost disclosures for investors. This is a somewhat arcane, technical issue, but the way in which costs are currently assessed and disclosed is a big disincentive for investors to invest in investment trusts.

“Previous governments had promised reform since 2021, but no action has yet been taken. The new government can quickly and easily correct this misleading and discriminatory cost disclosure regime.

“I also welcome the steps taken by the Government to encourage more companies to list on the UK stock exchange, by making the listing requirements more similar to those on the European and US stock exchanges. The new Chancellor, Rachel Reeves, wants to encourage more investment in British industry.

“Anything she can do to make it more attractive to invest in UK listed companies would be welcome. Given that it is unlikely that the Government will be pursuing the idea of a separate British ISA, it would still be worthwhile simplifying the existing range of different ISAs and an increase in the annual investment limit to £25,000 would also be welcome.

“Encouraging pension funds to invest a certain minimum percentage of their assets in the UK market might also be worth considering.

“Finally, and I realise that this is unlikely to be top of the Chancellor’s agenda, a commitment to scrapping the 0.5% stamp duty charge on the purchase of UK shares would go a long way towards levelling the playing field against other major equity markets which do not impose such a charge.

“A combination of some or all of these measures, together with the current relative undervaluation of UK equities could significantly help to make the UK market the natural home for many UK investors, particularly income investors, once again.”

Murray Income Trust manager Charles Luke said: “Turnover within the portfolio was 18%, the same as the prior year. The pattern of trades reflected the ongoing desire to improve, where possible, the quality of the portfolio and maintaining the focus on attractive capital and dividend growth. Active share (the proportion of the portfolio that differs from the benchmark) remained stable and was 67% at the end of the year.

“Our aspiration in terms of portfolio construction is simple: to invest in good quality companies with attractive growth prospects through a sensibly diversified portfolio with appealing dividend characteristics. Furthermore, the ability to invest up to 20% of gross assets overseas is helpful in achieving these aims with 13 overseas-listed companies in the portfolio at the period end representing approximately 20% of gross assets.”

Luke added: “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 Bank of England and the European Central Bank 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.  In summary, we feel optimistic that our long-term focus on investments in high quality companies with robust competitive positions and strong balance sheets, which are led by experienced management teams will be capable of delivering premium earnings and dividend growth.”