The Murray Extra Return Investment Trust offers investment predominately in UK Equities providing income and capital growth. Our panel review the trust firstly discussing how it fits into the market.
Dilke-Wing says: "It sits in the UK split capital investment trust sector well. The zero shares are going to be easily marketable given a competitive redemption yield and strong asset cover. However, it might be more difficult to shift the capital and income shares given current market sentiment." Lynch believes that this type of trust is not well understood by either investors or advisers but adds: "Split capital trusts are complex but can offer excellent returns unavailable elsewhere in the equity market." Ruddy welcomes the launch saying: "It's always good to have a new high yielding trust from a good stable." But Hulbert adds: "This is just another split capital investment trust launch."
Commenting on the trust's suitability, Ruddy reckons it's not for the faint hearted in view of the gearing. Hulbert offers a similar sentiment saying: "It's more suitable for experienced investors." Dilke-Wing expresses a more non-committed opinion. He says: "As with all split capital trusts, depending on the share class subscribed, the trust can be all things to all people. But it is 90 per cent invested in UK equities and its performance and returns will be determined by this." Lynch believes the trust will appeal more to sophisticated investors who can fully understand the different types of shares and who appreciate the risks. She says: "The zero preference shares are for the more security conscious, the income shares are for high income seekers and the capital shares are for experienced investors who understand the risk."
In the main, the panel feels that the trust doesn't offer any new marketing opportunities for them. Hulbert says: "There are no specific and unique features to market. But I like the zero dividend preference shares the best." Dilke-Wing says: "The zero shares may provide a marketing opportunity but the trust as a whole is in the wrong place at the wrong time. That is unless you have investors who need high income or are prepared to gamble on good UK equity growth over the next seven years." Lynch sees some scope for marketing the trust to trustees and sophisticated clients although she admits that investment trusts are not at the top of her list.
Turning to the trust's main useful features, Hulbert says: "The three classes of share should have universal appeal to experienced investors". But Lynch doesn't identify anything useful over and above what is already offered by other investment trusts. Dilke-Wing says: "The useful features and strong points are that all three elements offer competitive returns, provided that the underlying assets perform."
The panel are not all convinced about the trust's investment philosophy. Hulbert says: "I don't agree with the investment outlook put forward by the directors but there are as many views on future investment conditions as there are investments." Dilke-Wing says: "The investment philosophy of going for 90 per cent UK equities must be questionable given current market sentiment. Lynch is concerned about the timing of the launch. She says: "The trust's investment philosophy was good when conceived but as we are moving towards a potential bear market, a trust investing mainly in UK equities could suffer."
Apart from the timing of the launch, which is raised as the main drawback to the trust by Dilke-Wing and Lynch, the only other concern highlighted is the higher risk due to gearing. Dilke-Wing adds: "I feel that the capital shares will be difficult to move because of market sentiment and will probably trade at a significant discount in the near future."
Comments on Murray Johnstone's past performance range from pretty good to variable. Lynch says: "It's not exactly one of the best." Dilke-Wing adds: "Murray Johnstone is good at bonds, not bad at venture capital trusts and the capital shares of its existing split trust have done well. But unfortunately, as a general rule, it has more losers than winners."
The panel agree that Murray Johnstone has a good reputation in the market although this tends to be more within professional circles than with the public. Dilke-Wing says: "The company has a good reputation, probably better than its performance merits. But the administration and reporting are not quite good enough to compensate for average returns."
Dilke-Wing thinks that the Gartmore SNT launch will provide the main competition saying: "I have a feeling that Gartmore will probably do rather better although the objectives of both trusts are remarkably similar." Other companies mentioned include Jupiter and Schroder. Lynch says: "Scottish National will also provide competition if it brings out a further trust to replace its successful trust which is winding up this year."
Analysing the trust's charges, most believe them to be normal for this type of investment. Dilke-Wing says: "The charges seem to be relatively standard for this type of trust." But Lynch thinks different. She says: "The charges appear to be towards the higher end of the market."
Most of the panel are disappointed with the level of commission payable. Dilke-Wing says: "It hardly makes me want to go out and preach the split capital gospel, but I wouldn't have expected significantly more. The absence of commission on the zero shares is disappointing but similarly predictable." Lynch adds: "This is definitely towards the lower end of the market." Ruddy is of the same view saying: "The commission is lower than some recent issues from other groups."
Summing up, Hulbert says: "Apart from the zero preference shares, I'm unlikely to use this product and then only for more experienced clients."
(Average marks out of 10)
Investment philosophy 6.2
Past performance 5.7
Reputation in market 6.2
Product literature 5.0
Jeremy Hulbert, proprietor, Hulbert Financial Services, Peter Ruddy, director, Peter Ruddy & Partners, Jocelyn Lynch, managing director, Horwath Clark Whitehill Financial Services, Martin Dilke-Wing, director, Morgans Independent Advisers.
MURRAY EXTRA RETURN INVESTMENT TRUST
Aim: Split capital investment trust designed to provide growth in income and capital growth.
Minimum investment: Negotiable.
Investment split: UK equities – 90 per cent, fixed interest securities – 10 per cent.
Types of share: Zero dividend preference, income and capital.
Yield: Zero dividend shares – equivalent to 7.8 per cent gross a year realised on maturity. Income shares – 9.4 per cent gross a year.
Redemption date: November 30, 2005.
Pep link: Available.
Charges: Initial – capped at 3 per cent, annual – 0.5 per cent of gross assets.
Commission: 1.5 per cent on income and capital shares.
Tel: 0800 833575.