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.

Analyst's 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

31 May 2024 Always look on the bright side of life
We argue that optimism is more likely to serve investors better than pessimism…
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.
24 Apr 2020 Kepler Rated: Mercantile
MRC has the lowest OCF in the sector and is also trading on a discount wider than average...
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 Fund Analysis
A large and liquid UK mid-cap focused investment trust which is one of the cheapest in its sector...
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...
20 Mar 2018 Star struck
Star culture presents siginficant problems for asset management companies when top managers jump ship. We examine the steps some groups take to avoid them...
13 Sep 2017 Big Issue(rs)
We highlight the UK equity trusts that have issued and bought back the most shares over the course of 2017 so far and how these actions have affected shareholders...
02 Aug 2017 Carpe Discount…
We analyse just how much discount movements have on shareholder returns in the AIC UK All Companies sector...
12 Jun 2017 MAYDAY!
As the Conservative party founders, we examine the impact of last week’s disastrous election on trusts...
07 Jun 2017 Omnishambles...
Given the huge levels of political-induced uncertainty, we analyse recent drivers and themes within the UK equity market ahead of the upcoming election
21 Apr 2017 Fund Analysis
We examine one of the oldest and largest trusts in the sector, with a strong track record and a well resourced management team, after the release of its results...
26 Apr 2016 Analysts welcome Mercantile results
Analysts at Winterflood Securities think The Mercantile Investment Trust is an attractive alternative for investors seeking smaller companies exposure on its current discount.
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