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
A new version of this profile is available. View Latest
Overview



The Mercantile Investment Trust (MRC) is currently the largest investment trust in the AIC UK All Companies sector, with concurrent benefits from economies of scale. Managed by Guy Anderson and Anthony Lynch, the trust typically consists of over 80 positions in various UK companies where the managers believe the market fails to sufficiently appreciate the long-term potential of the business.

As discussed under Portfolio, MRC has historically had a strong mid-250 bias. The managers believe this offers something of a ‘sweet spot’ between operational scalability, stock liquidity and stock pricing inefficiency, amongst other factors. At a stock level, the investment process balances quality, momentum and value considerations. The managers further consider top-down factors (in many cases informed by bottom-up, stock-specific observations), in portfolio construction, and presently this is seeing them lean towards ‘recovery’ plays at the margin.

Stock selection has been a notable contributor to longer-term returns, as we discuss under Performance, with MRC providing significant long-term outperformance relative to peers and indices. On an NAV basis, MRC has consistently generated a positive information ratio. Flexible use of gearing boosted returns over the previous financial year (ending 31/01/2021). In recognition that significant NAV gains were reducing the effective ratio of gearing the managers could deploy, MRC’s board recently negotiated an expansion of gearing facilities, of which the managers have subsequently availed themselves.

Though the managers focus on total returns, MRC has a strong record of dividend growth. With sizeable revenue reserves in place and a board which has demonstrated its willingness to deploy these to support the dividend, MRC’s managers tell us they have not had to compromise their investment approach in order to chase yield.

Analyst's View

Long-term returns have been strong, and we think the evidence strongly suggests that the stock-picking process has been consistently additive to returns (with particular reference to the consistently positive information ratio displayed, as discussed under Performance). Marrying different stylistic inputs, we think the portfolio looks to be reasonably balanced across probable top-down macroeconomic outcomes, but ongoing and potentially accelerating recovery in domestic UK economic activity looks likely to be a positive. Given significant levels of gearing are being deployed, the fact that MRC’s NAV relative to the UK market tends to correlate with the fortunes of mid caps – and that mid caps tend to outperform if the UK is outperforming – we think MRC could be attractive to those positive on the UK market at this time. We think that recent measures to expand the level of gearing available, in recognition of the growth seen in NAV, should be welcomed for ensuring the managers should retain similar flexibility to that they have enjoyed in the past.

Whilst a historic yield of c. 2.5% is not by itself likely to be the central interest to income investors, the strong track record of dividend growth may be. Although it has been necessary to draw down revenue reserves to maintain this in the most recent financial year (and possibly going forward), MRC retains substantial revenue reserve cover – money held back which can be used to support dividends during years when underlying portfolio income is leaner. A mid-single-digit discount level, as presently seen, does not leap out at us as screamingly cheap relative to recent history, but nor is it unattractive.

bull bear
Strong long-term returns boosted by stock-picking (with a consistently positive information ratio)
Overweight to UK revenue generation could weigh on returns if UK economy underperforms
Large and liquid trust, with attendant low management fees
Gearing can exacerbate downside (as well as amplify upside)
Experienced team with significant depth of analytical resources
Discount is narrower than has been the historic norm
Strong revenue reserves to support the dividend

Continue to Portfolio

Fund History

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.
View all

Welcome to Kepler Trust Intelligence

Kepler Trust Intelligence is authorised in the UK by the Financial Conduct Authority.
Please enter a valid email address
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid email address
{{item.msg}}
Please check your email. If an account exists you'll be sent instructions on how to reset your password.
Kepler Trust Intelligence is authorised in the UK by the Financial Conduct Authority. To ensure that we are able to provide content which is appropriate for you, please tell us a little about yourself.
Please choose an option
{{item.msg}}
Please enter a company name
{{item.msg}}
Please enter a location name
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a platform
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a trust
{{item.msg}}
?
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.
Please confirm
{{item.msg}}
Please select an option
{{item.msg}}
See benefits
A free Kepler Trust Intelligence account allows you to access premium content including the ‘Kepler View’ – our verdict on the trusts we cover – and historical research so you can see how our view has changed over time. An account also unlocks useful facilities like the ‘follow’ button which lets you keep track of the trusts you’re interested in and as a logged in user you can also download PDFs of our research, and choose the layout of the page you’re reading to suit your preference. We will not share your details unless you give us permission to do so, and we won’t bombard you with emails – we only send one a week.
Please select an option
{{item.msg}}
Please enter your first name
{{item.msg}}
Please enter your last name
{{item.msg}}
Please enter a valid email address
An account already exists with this email - have you forgotten your password?
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid password
{{item.msg}}
How will this information be used? Your answers help us to tailor our content to relevant investment trusts, and to ensure that the asset allocation and portfolio strategy research we produce is appropriate to our userbase.
Our Website uses Cookies Cookies are small text files held on your computer. They allow us to give you the best browsing experience possible and mean we can understand how you use our site. Some cookies have already been set. You can delete and block cookies, but parts of our site won’t work without them. By using our website you accept our use of cookies. For further information please refer to the Kepler Privacy Notice.
Need help?

One more thing...

Did you know, you can 'follow' individual trusts on Kepler Trust Intelligence? Use the functions below to set up alerts and we'll send you research and updates on your chosen trusts.

Suggested trusts to follow

Browse all funds
Need help?
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.