Fund Profile


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.

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The Mercantile Investment Trust (MRC) is focussed on identifying future market leaders in the UK, that is mid and small-sized companies outside of the FTSE 100 Index that could potentially grow into some of the UK’s largest companies and deliver long term capital appreciation for shareholders. As discussed in Portfolio, the lead manager Guy Anderson focusses his efforts on the mid-cap space, his relatively concentrated portfolio of c. 75 – 80 holdings being largely drawn from stocks in the FTSE 250 Index. Although better established than very small companies, Guy believes these stocks are often still underappreciated due to thin broker coverage and inertia in the market’s understanding of a company’s business model and market positioning. Taking advantage of these opportunities, Guy has delivered substantial outperformance over the last five years primarily via stock selection, as discussed in Performance. The trust also aims to deliver long term dividend growth ahead of inflation and currently pays a yield of 2.5%, which we think could be attractive for a capital growth-orientated, mid-cap strategy (see Dividend).

Guy has the flexibility to ‘run his winners’ and hold onto stocks that he believes still have growth potential even after migrating to the FTSE 100. The flexibility to hold larger companies is why MRC resides in the AIC UK All Companies sector, where with total assets of c. £2.2bn it is the largest trust. The benefits of economies of scale mean MRC is noticeably less expensive to hold than peers, with an OCF of 0.48%. The scale of MRC has also allowed the board to provide Guy with expanded, cost-effective borrowing facilities to deploy at his discretion (see Gearing).

Analyst's View

The UK mid-cap space has been rewarding to investors, the FTSE 250 outperforming the FTSE 100 by c. 4% p.a. over the last three decades. Why this is the case is a matter of debate. Arguably the combination of the growth potential of smaller companies plus the ‘junk’ filter of a company having to hit critical mass to reach mid-cap status is a sweet spot for investors.

If an investor wants exposure to UK mid-caps, they could buy a tracker like the iShares FTSE 250 UCITS ETF, which has an OCF of 0.40%. For 0.08% more p.a. (i.e. 8p per £100 invested p.a.), an investor could buy MRC instead and receive multiple benefits. Firstly, Guy is an experienced, active manager supported by a well-established and resourced team with a track record of adding value primarily via stock selection (a statistically more robust source of excess returns than large bets on sectors or style rotations, see Performance). Secondly, long term returns can be enhanced via the use of cost-effective Gearing. Thirdly, the opportunity set is wider, Guy being able to access good prospects outside of the FTSE 250, both smaller companies that have yet to achieve mid-cap status plus holding onto portfolio winners that have migrated to the FTSE 100 (a position an index tracker would be forced to sell). As a final kicker, MRC currently has a higher income yield than the ETF, and the dividends are supported by ample revenue reserves.

bull bear
Strong long-term performance track record enhanced by stock selection rather than large ‘macro’ bets
Allocation to FTSE 100 may not suit investors looking for pure mid-cap exposure
Large and liquid trust, with low management fees
Gearing can exacerbate downside (as well as amplify upside)
Experienced team with significant depth of analytical resources
Scale and approach preclude exposure to opportunities in smallest UK stocks
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

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…
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 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
A large and liquid UK mid-cap focused investment trust which is one of the cheapest in its sector...
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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