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
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Overview

The Mercantile Investment Trust (MRC) looks to deliver long-term capital growth from a portfolio of UK medium-sized and smaller companies. Managed by Guy Anderson and Anthony Lynch, the trust typically consists of around 80 positions in various UK companies where the managers believe the wider market fails to sufficiently appreciate the long-term potential of the business.

As we discuss under Portfolio, MRC is very much focused on the UK mid-cap market, with Guy and Anthony believing lower levels of broker coverage offer structural advantages to active investors. The managers operate a disciplined investment process focusing on the characteristics and advantages of a business, how these are presently valued, and what the operational momentum of the business is. At present the managers believe that, amidst the ongoing economic challenges, there remain significant opportunities for a number of companies that are not being accurately reflected by their valuations.

Long-term returns have been strong, with a significant contribution over the previous ten financial years from stock-picking, as we discuss under Performance. The Discount has narrowed in recent weeks to c. 2.3% (as at 06/11/2020), as share prices caught up to NAV gains in recent months. More recent returns have remained strong, but the perceived sensitivity to political developments of UK mid caps has, in recent years, seen a degree of mean reversion in relative returns.

MRC shareholders benefit from economies of scale, with an OCF of only 0.44%. Despite MRC’s large size, the closed-ended structure helps Guy and Anthony to manage portfolio liquidity whilst continuing to look for the most attractive growth opportunities and to invest further down the market capitalisation spectrum.


Analyst's View

The relative fortunes of the UK market, both in intra-market dynamics and relative to global peers, seem likely to hinge on the shape, velocity and rapidity of any ongoing global economic recovery (and market perceptions thereof). Recent fluctuations in the relative performance of UK financial assets seem suggestive to us that the market continues to regard the UK economy as relatively cyclically exposed to variations in global growth and trade data. The ongoing situation with Brexit negotiations is likely to add to this dynamic. More positive data or positive shifts in global market assumptions on the relative strengths of the UK economy could potentially drive a normalisation in global investor allocations to UK equities.

By further extension, the relative and absolute fortunes of MRC in the short term seem likely to remain tied to these variables. Positive sentiment increases would, we would expect, be likely to see additional upside capture. However, assumptions that the constituent companies are inherently more economically vulnerable than the broader market because of the mid-cap tilt could, in conjunction with gearing, cause downside beta too. Yet MRC appears to be tilted towards companies enjoying more structural drivers of operational growth. Irrespective of near-term dynamics, we think this offers long-term potential in a market offering compelling valuations, but investors should be prepared to accept near-term volatility.

Bull Bear
Strong long-term returns boosted by stock-picking Near-term returns likely to remain strongly impacted by external factors
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
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.
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