Murray Income investment trust manager aims to take advantage of improvement in markets
Ross Watson, manager of the Murray Income Investment Trust, has geared up the trust to 12% to take advantage of a medium-term improvement in equity markets.
The trust, which has around £372m in assets under management, ranking it the fifth largest in the UK Growth & Income sector, has seen its gearing level rise from 2% in January.
Watson said: 'I invested money into the market in June. Gearing at the end of June, the end of the financial year, was approximately 9%. In July, I invested further money and gearing is approximately 12% today. That shows I do have confidence in the medium-term outlook for UK equities.'
The nature of the gearing of the trust is different to most in the sector.
Watson said: 'The gearing has varied quite markedly over the past financial year. In July 2001, at the beginning of the financial year, total borrowings were £48m and gearing was more than 15%.
'Over the next couple of months, it was reduced very sharply to only £6.5m. That is something Murray Income is able to do easily and cheaply because all of its bank debt is at floating rates so can be repaid without any penalty, which is quite unusual in this sector.
'The majority of geared funds have long-term debt, which is currently trading well above par so it is expensive for them to repay.
'At the turn of the calendar year, gearing was just about 2% but was modestly increased in the following months.'
The trust, which is benchmarked against the FTSE 350 high-yield index, is preparing to fight off a resolution at its upcoming annual general meeting to exclude investment in tobacco stocks, which has been the UK market's best performing sector.
Watson said: 'At the AGM last year, a couple of shareholders were quite vociferous in saying they thought Murray Income should not invest within the tobacco sector for ethical reasons. 'It was pointed out to them that this is not an ethical fund and we are intending to continue to invest in that way but if they feel strongly about it, they should bring forward a resolution.
'It's impractical for an individual shareholder to bring forward a resolution now so the board, given what was said and the commitment they felt they had made to those shareholders, has said it will introduce the resolution itself.
'However, when I give my presentation at the annual general meeting, I will be vigorously defending my right to invest in any sector in the market, including tobacco. I will be saying, quite strongly, this is not an ethical fund.'
Partner Insight: Introducing the Architas education series for clients.
'Fewer than 1% of firms PROD-compliant' - Rory Percival
'Left holding the can'
'VCTs and EIS compared' panel
Letter to Women and Equalities Committee