Murray Income (MUT ) has sought to soothe shareholders facing a year of underperformance with a fee reduction, which chair Peter Tait said would save them £250,000 a year.

The £993m UK equity income trust lead managed by Abrdn’s Charles Luke delivered underlying returns of 9.9% over the 12 months to 30 June, which trailed the FTSE All Share index’s 13% gain, annual results showed.

Over three years the stock selections of Luke and co-manager Iain Pyle have also underperformed with a 3.9% annual growth in net assset value (NAV) against the All Share’s 7.4% annual return.

Over five and 10 years, however, they narrowly beat the benchmark with underlying annualised returns of 5.7% and 6% respectively. 

Unfortunately, the long-standing discount – or gap between the shares and NAV – widened from 8.2% to 10.5% as the UK stock market remained out of favour. That meant the shares gained 7.6% and trailed the index not just over one, but also three, five and 10 years with annual returns of 3.9%, 4.6% and 5.5% respectively, figures from the company showed.

The new fees, which will be back-dated to 1 July, will be cut from three tiers to two, with 0.35% charged on the first £1.1bn of net assets, falling to 0.25% thereafter. Fees had previously been levied at 0.55% on the first £350m of net assets, 0.45% from £350m to £450, and 0.25% thereafter.

‘The board is confident that this is a competitive fee structure within the overall investment trust industry,’ Tait said. 

The 4.5%-yielder’s earnings fell by 3.4% to 37.4p per share over the period, meaning £0.6m was drawn from the trust’s reserves to cover the 38.5p annual dividend. 

The drop in earnings reflected falling dividend growth across the portfolio as UK companies opted to buy back their shares instead. Luke pointed out that no special dividends were paid for the first time in several years.

‘This is positive in the sense that it indicates that companies believe that their shares are attractively valued but unhelpful from an income perspective,’ said Luke (pictured below). 

The portfolio’s income was also knocked by private banking group Close Brothers (CBG) suspending its payout and insurer Direct Line (DLG) reducing its.  

Close Brothers was the biggest detractor in the portfolio as it became a target for the Financial Conduct Authority’s review of motor finance practices. It suspended its dividend to stockpile cash in anticipation of paying customer compensation.

Luke and Pyle reduced their position in the company, but held onto it as they expect it to return to the dividend list once the FCA’s motor finance review has concluded.

Turnover in the fund was in line with the previous year at 18% of the portfolio, which the pair said reflected ‘the ongoing desire to improve, where possible, the quality of the portfolio and maintaining the focus on attractive capital and dividend growth’.

They added nine holdings, including four blue chips; HSBC (HSBA), Haleon (HLN), Berkeley Group (BKG) and Smurfit Kappa (SKG).

There was one mid-cap addition in engineer Rotork (RTK), which they said had ‘strong quality characteristics and underappreciated growth opportunities’.

Coca-Cola Europacific Partners (CCEP) was added as their ‘preferred Coca-Cola bottler’ in place of Coca-Cola HBC (CCH).

In contrast to Janus Henderson manager Job Curtis, who has decreased exposure to overseas companies in favour of attractive UK stocks, Luke utilised his ability to invest up to 20% of the fund overseas. 

He added US-listed Mastercard, which he said has ‘strong competitive positioning and high barriers to entry, as well as having multiple long-term growth opportunities’.

German car manufacturer Mercedes-Benz was also added alongside French industrial gas supplier Air Liquide. 

The nine new stocks replaced nine leaving the portfolio, including Croda (CRDA), Marshalls (MSHL), Drax (DRAX), and Roche, which were all exited as concerns around business models and trading environments reared their head.

Overall, Luke said that the valuations of UK companies are attractive on both a ‘relative and absolute basis’ and investors should not overlook the fact they are ‘benefiting from global income at a discounted valuation’.

Over five years to date, underlying portfolio returns of 33% match the index, but the returns shareholders have received trail at 28%, according to data from Deutsche Numis.