THE MURRAY Income Trust put in a markedly better performance in the year to the end of June than it did in the previous 12-month period although thanks to the performance of some of its holdings the fund failed to match the growth of its benchmark, the FTSE All-Share.

According to manager Charles Luke “stock selection and asset allocation were both marginally negative” over the period, with “poor stock selection in media and support services [proving] detrimental”.

In particular, investments in business process outsourcer Capita and publisher Pearson were a drag on performance, resulting in the trust making a net asset value total return of 16.7 per cent against the index’s 18.1 per cent.

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“Capita performed particularly poorly in the first half of the year before partly recovering,” Mr Luke said. “The company reported delays in client decision-making, contract issues and a weaker than expected performance in a couple of the company’s trading businesses.”

He added that Pearson, which issued a profit warning in January, “suffered primarily due to weakness in its North American higher education courseware business given a mix of lower enrolments and increased textbook rentals”.

“Although trading conditions still remain challenging for Pearson, the company has taken steps to sharpen its focus and the prize for successfully negotiating the passage to a digital education company remains substantial,” he added.

Looking at the portfolio as a whole, Mr Luke said the first six months of the year had been particularly challenging.

“The portfolio is mostly populated by holdings that combine attractive dividend yields and a relatively high degree of income security through diversified geographical earnings streams,” he said.

“Particularly in the first six months of the period, these characteristics did not position the portfolio well in relative terms. The reasons for this are twofold: firstly, the share prices of those companies reliant on the strength of the UK economy rebounded from an oversold position in the immediate aftermath of the European Union referendum result and, secondly, companies with defensive growth characteristics underperformed and more cyclically exposed companies outperformed as interest rate and inflation expectations rose.”

Despite the underperformance trust chairman Neil Honebon, who is standing down and will be replaced by Neil Rogan, noted that a recommended final dividend of 11.75p would take the total for the year to 32.75p.

That represents a rise of 1.6 per cent and means the trust has increased its annual dividend for 44 consecutive years.

Looking ahead to the remainder of the current financial year, Mr Honebon said it is “hard to argue that the uncertainties in the political sphere have cleared recently, and that remains a major risk for markets in the year ahead”.

“Economic and foreign policy construction has become more erratic with considerable scope for market surprises, especially perhaps in currencies,” he added.

“Financially, real interest rates are still aberrantly low and history tells us that some reversion is inevitable, although the exact path and timing are unclear.

“When rates do revert, there will be casualties. If the impact of low rates has been more obvious on financial asset prices than on economic activity, it seems likely that Central Banks will have to tread very carefully to avoid unsettling markets in their first steps back from the massive monetary experiment.”

Mr Honebon noted that the board has negotiated a reduction in the management fee charged by Aberdeen Asset Management to run the trust that will come into force at the beginning of 2018.

Despite this, he added that the board will continue to monitor the asset manager in light of its recent merger with Standard Life to create the business Standard Life Aberdeen.

“Although Aberdeen is well practised at absorbing other companies, such mergers often divert management effort to internal issues away from clients and can be disruptive for employees,” he said.

“Throughout this process, therefore, the board has closely monitored the likely impact on the company and will continue to do so as merger decisions are implemented.”