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 and smaller companies. Managed by Guy Anderson and Anthony Lynch, the trust typically consists of over 80 positions in various UK companies where the managers believe the wider market fails to sufficiently appreciate the long-term potential of the business.

Performance was extremely strong in 2019, with NAV returns far outstripping the wider market and share prices doing even better, further aided by a narrowing in the discount to near parity to NAV. Excess returns in MRC share prices in 2019 were over 30% above those of the FTSE All-Share. Long-term returns have also been rewarding for investors.

The managers operate a disciplined investment process focussing on the characteristics and advantages of a business, how these are presently valued and whether this represents an incorrect representation of its prospects, and what the operational momentum of the business is.

MRC will generally focus on the mid-cap market, where the managers believe there are greater pricing inefficiencies and other structural advantages for active investors. As well as the active management benefit JPM hope to bring to this market, there is structural gearing in place which should benefit investors in rising markets, albeit increasing the downside potential in falling markets.

With net assets of over £2bn, the trust has a very low OCF (ongoing charges figure) of only 0.45%. Despite its 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. As part of the wider JP Morgan Asset Management team in London, there are significant benefits of scale and analytical resources available to the managers.

The shares currently yield c. 2.5% and stand on a discount to NAV of c. 2.6% (as of 31/12/2019).

Analyst's View

With a closed-ended structure and the ability to utilise gearing, we think MRC is in a strong competitive position. There are limited options available to investors looking to focus on the UK mid and small-cap market, and the experience and significant depth of analytical resources behind the trust should mean it continues to represent an attractive option for investors looking to access the UK mid-cap market.

The managers’ strategy remains aligned with the approach that has historically helped the trust to generate strong outperformance. Recent weeks have provided a further boost to returns following the Conservative party victory in the general election, which saw UK assets (and especially smaller and mid-cap companies) suddenly in demand. At the same time, the sheer degree of outperformance that MRC shareholders have experienced over the past 12 months in its core mid-cap market could mean we are due a period of consolidation on a relative basis.

bull bear
Has exhibited significant and consistent upside outperformance Though growing, yield is not particularly high
Large and highly liquid trust, with attendant low management fees Recent very strong outperformance could result in profit-taking by some shareholders, which could see the discount widen from this point
Experienced team with significant depth of analytical resources Gearing can exacerbate the downside (as well as amplify the upside)
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 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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