Aberdeen’s Luke joins mining rush

Aberdeen Asset Management’s Charlie Luke has increased the Murray Income trust’s mining holdings for the first time in five years, joining the flurry of managers ramping up their exposure to the sector.

Mr Luke, who manages the £528.4m trust, said he had boosted his weighting in BHP Billiton from 2.5 per cent to 3.5 per cent as he saw the change in management at the FTSE 100 company as a positive catalyst for its shares.

The oil and gas sector has been under pressure for the past two years and there are fears that slowing economic growth in China might further depress commodity-focused companies.

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But Mr Luke said BHP Billiton was a good way to play the market.

“The company said it was going to cut capital expenditure and focus on increasing returns on assets that it has already, rather than making acquisitions,” Mr Luke said.

His increased stake follows moves by several key managers to boost their exposure to the mining sector.

Franklin Templeton’s Colin Morton bought into the mining company in May and into its rival Rio Tinto after both companies lagged the market rally earlier in the year. In June, Investment Adviser revealed that Artemis Income fund managers Adrian Frost and Adrian Gosden had launched a major trade into the battered sector on their £5.6bn fund.

Mr Luke said he was underweight oil and gas producers but overweight oil service providers as he believed the latters’ specific expertise made them a valuable investment, as extractors had no choice but to pay to use them.

Elsewhere, Mr Luke has taken profits from consumer goods names, including British American Tobacco and Associated British Foods, as he felt valuations had become less attractive.

At present, the investment trust has 15 per cent invested in overseas stocks, and can increase this to a maximum of 20 per cent.

Mr Luke said he was seeking to invest this additional 5 per cent in US companies, as “yields are not high but there is good scope for growth”. He added that there were positive signs in the economy, including the improved housing and labour markets.

Mr Luke said he was looking at mid-cap financial stocks pending a pullback in the sector from their present high valuations.

Murray Income trust has outperformed the FTSE All-Share index in one, three and five years, according to FE Analytics.

Over five years its share price total return is 79.8 per cent, compared with a 51 per cent rise for the benchmark index.

Like many income-themed trusts, Murray Income’s shares trade at a premium to net asset value, currently 2.4 per cent, in spite of £10m of shares being issued in the past six months.