Fund Profile

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Mercantile. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
MRC’s performance has recovered, yet the trust remains at a wide discount…
Overview

Mercantile Investment Trust (MRC) is managed by Guy Anderson and Anthony Lynch who look to build a portfolio of quality UK companies that have the growth potential to be future market leaders. This leads to the trust having a mid-cap bias. Their approach entails a disciplined, bottom-up process based on fundamental analysis that utilises the substantial resources of JPMorgan’s equity team.

The managers positive outlook for the domestic consumer has driven recent Portfolio changes. They believe increases in real wages and the peaking of interest rates will result in higher consumer spending, leading them to take overweight allocations to consumer-exposed industries, including the likes of consumer discretionary names which are notably overweight allocations, and include considerable activity in the housebuilders.

Housebuilders have been a significant contributor to Performance in the past year, especially towards the end of 2023 and into 2024. This has helped MRC significantly outperform its benchmark in the past year, marking a return to form and contributing to long-term cumulative outperformance. MRC was awarded Kepler’s Income & Growth award for 2024.

The level of Gearing of the trust also reflects the managers’ positive outlook. The level has been increased to near the highest level of the past five years at 15% and takes advantage of the strong balance sheet that the trust has, having refinanced at a timely point to lock in attractive long-term rates.

The trust continues to trade at a wide Discount to NAV, having done so for much of the past two years. The board has been active in trying to narrow the discount by undertaking share buybacks, having bought back c. 8m in the past financial year, and c. 5m in the period since the start of the new financial year.

Kepler View

The managers have delivered very strong 12-month returns which have contributed to delivering strong outperformance over the long term (see Performance). This marks a strong return to form following a challenging 2022 and is, in our opinion, a testament to the stock selection process and the strength of the resources available to the managers.

The managers have positioned the portfolio for a recovery in the domestic economy by tilting to companies exposed to consumer spending. We believe this move may prove astute, as broader macroeconomic data is arguably turning positive and could lead to strong returns through 2024. The recovery potential is also well supported by the significant level of Gearing. Whilst gearing has been an ongoing feature of the trust, the current level is near the top of the historic range based on the manager’s optimistic outlook and we would expect it to enhance outperformance should markets rise in line with the managers’ beliefs.

Furthermore, despite the trust being well positioned to capture a potential turnaround, the shares remain at a wide Discount to NAV. We don’t believe this reflects the potential for either the trust or mid-cap UK equities in which the trust specialises and could prove an attractive entry point for long-term investors.

Bull

  • Excellent long-term performance track record supported by stock selection
  • Trust is trading at a wide discount to NAV
  • Attractive dividend supports total returns

Bear

  • Portfolio has a bias toward consumer spending which could struggle in a downturn
  • Gearing, which has been increased, can amplify losses as well as support upside
  • Mid- and small-cap bias can lead to higher volatility versus peers
Continue to Portfolio
2024 Kepler Income & Growth Rated Fund

This trust has been awarded a rating by Kepler Trust Intelligence for income & growth... Find out more

Fund History

25 Sep 2024 No place like home?
Our analysts debate the benefits and drawbacks of investing in what you know best…
15 Aug 2024 Buy British
Our analyst argues benchmark-aware investment strategies aren’t a human right…
26 Jun 2024 Kings for a day
As Britain heads to the polls, our analysts imagine what they'd do given a chance to implement economic reform…
29 Apr 2024 Fund Analysis
MRC’s performance has recovered, yet the trust remains at a wide discount…
17 Apr 2024 Pretty, pretty, pretty good
Do investment trusts really protect capital and income against inflation? Let's take a look…
17 Jan 2024 Top of the Pops
We reveal the winners of our investment trust ratings for 2024…
30 Aug 2023 UK OK, HUN?
Sentiment towards the UK is at rock bottom, which means only one thing…
28 Jul 2023 Fund Analysis
MRC is offering higher quality than the benchmark, which should help in uncertain times…
11 Jan 2023 Solving the Rubik’s Cube
We reveal the winners of our investment trust ratings for 2023…
30 Nov 2022 Fund Analysis
MRC is trading on a potentially attractive discount despite a focussed, quality portfolio...
26 Oct 2022 Money for nothing
Debt measured at fair value has had a positive impact on NAV returns for a number of investment trusts this year...
16 Feb 2022 Fund Analysis
MRC seeks to be the home of tomorrow’s UK market leaders…
05 May 2021 Fund Analysis
MRC has the lowest OCF in the AIC UK All Companies sector and a strong track record...
28 Apr 2021 The next value opportunity?
Two of our analysts debate whether Europe's improving vaccination programme will be the next opportunity for investors in their pursuit of returns...
19 Nov 2020 Fund Analysis
MRC has the lowest OCF in the UK All Companies sector and a strong track record...
05 Feb 2020 The best form of defence
We look at the continued rise of passive funds, and find out how investment trust managers are countering it...
29 Jan 2020 Fund Analysis
This UK focussed trust has the lowest OCF in the sector and is also trading on a discount wider than average...
27 Mar 2019 NEVeR MiND tHE B*LL*CKS
We cut through the histrionics and discover, with surprising results, what life has really been like for British investors since David Cameron put it to 'the people'....
22 Mar 2019 Fund Analysis
This UK focused trust has the lowest OCF in the sector and is also trading on a discount wider than average...
27 Jun 2018 A winning combination
New research from Cass Business school helps explain why closed-ended funds have outperformed their open-ended peers in the major equity sectors since 2000...
27 Jun 2018 Fund Analysis
The Mercantile Investment Trust is a large and liquid UK mid-cap focused investment trust...
19 Apr 2016 Brexit discount slump is a buying opportunity
Analysts believe a sharp bounce is likely if the public comes down in favour of a 'remain' vote.
15 Mar 2016 First class trusts at knockout discounts
A fire-sale by a fund of investment trusts dumping assets worth more than £650m is good news for discount hunters...
07 Jul 2015 Fund Analysis
10 Jun 2015 Blighty is back in the race
We analyse six open & closed-end sectors and highlight the funds best placed for what some believe is a 'sweet spot' for UK equities.
View all

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The information contained herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in the United States to or for the benefit of any United States person (being residents of the United States or partnerships or corporations organised under the laws thereof). The investment funds referred to herein have not been registered in the United States under the Investment Company Act of 1940 and units or shares of such funds are not registered in the United States under the Securities Act of 1933.
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Current Site Kepler Trust Intelligence is produced by the investment companies team at Kepler Partners and is the UK’s premier source of detailed qualitative research on investment trusts. Absolute Hedge is a market leading UCITS research database providing proprietary research on funds, themes and strategies in the UCITS space. Kepler Liquid Strategies is a Dublin domiciled UCITS fund platform featuring a number of best-of-breed fund managers. Kepler Partners is a corporate advisory and asset raising boutique specialising in the regulated funds market in Europe and investment trusts in the UK.