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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 is offering higher quality than the benchmark, which should help in uncertain times…
Overview

Mercantile Investment Trust (LON:MRC) owns a portfolio of primarily medium-sized, UK-listed companies that lead manager Guy Anderson selects through a bottom-up process that focusses on quality and long-term growth prospects. Guy has the flexibility to also invest in smaller companies, as well as the ability to run his winners into the large-cap FTSE 100 Index. Guy’s disciplined process has meant that MRC’s portfolio is currently offering higher quality than its benchmark, experiencing upwards earnings revisions, but is still trading at valuations in line with the market (see Portfolio).

Changes to the portfolio this year have been limited, but Guy has focussed on companies which are able to navigate uncertainty. Guy admits the economic picture is mixed and that negative sentiment has resulted in falling valuations. However, the earnings of the portfolio companies have been broadly resilient, driven by stronger consumer spending than many have expected, especially in light of weak economic headlines (see Performance).

Guy believes the UK remains cheap versus international peers and that the premium on mid-caps has come down significantly versus large caps. As such, the portfolio has an element of a double discount, as the trust itself has moved to a Discount that is more than one standard deviation wider than its five-year average.

MRC pays a modest Dividend. This has returned to being fully covered following an improvement in underlying revenue generation. As capital growth remains the primary objective for the managers of the trust, the dividend is a secondary goal. Following a number of upgraded forecasts, the payout has increased by 3.6% in the past year.

Analyst's View

We believe MRC offers something different for investors thanks to its focus on quality mid-cap companies, including some exposure to smaller companies. This helps it stand out against a number of strategies that have a bias to large caps, and against an ETF. The quality focus is supported with impressive resources in order to help identify mispriced opportunities (see Portfolio).

The long-term Performance of the strategy compared to peers has been strong, but MRC had a difficult period in 2022. However, following stronger recent returns, the trust is now ahead of both the peer group and benchmark over one and five-year periods. We believe this demonstrates the resilience of the strategy and should offer reassurance going forward into a potentially unclear period. Guy’s focus on identifying companies whose fortunes remain under their control should support performance, if economic uncertainty continues.

We believe the wide Discount could be considered an opportunity for long-term investors, too. The discount has widened in line with the sector average in the past couple of years and is now one standard deviation wider than its own five-year average. When this is considered alongside the depressed UK valuations and the erosion of the premium of mid-caps against their large-cap equivalents, we believe MRC offers a compelling value opportunity.

Bull

  • Trust is offering higher quality and earnings prospects for similar valuations to index
  • Trading at a wider discount versus its own history
  • Dividend has grown and returned to fully covered

Bear

  • Mid-cap focus provides domestic exposure which could be threatened by weaker growth
  • Another value rally could impact relative performance
  • Gearing can amplify losses, as well as potential upside
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

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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