The Merchants Trust PLC was founded in 1889 by some of the leading financiers and lawyers of the day.
Established in 1889, The Merchants Trust celebrates its 130th anniversary in 2019, having successfully navigated a variety of market conditions – and several world conflicts - throughout its 130 year history.
What is fascinating is that although the present day Merchants has a very different investment strategy to the one of 1889, the Trust was set up to deliver something very similar to what it does today: to invest in a diverse group of investments in order to provide investors with an opportunity to benefit from some of the growth industries of the era.
Merchants’ initial objective was to deliver healthy dividends of perhaps 5 to 6% plus capital growth, by investing in North American railway expansion, as well as in other continents, countries and industries. This approach proved robust enough for the Trust to survive various panics in its early years, when it had experienced all manner of market conditions but still managed to pay out to its founding investors healthy and gradually increasing dividends.
Very few of the trust’s early investments still exist today, so arguably that’s one demonstration of the benefit of active management over time. The companies we are investing in now don’t tend to have a 130 year history, so the real benefits of changing the portfolio gradually have become apparent over the very long term.
Reflecting on the Trust’s longevity, Portfolio Manager Simon Gergel says: “It is a great privilege to be the fund manager of The Merchants Trust as it turns 130 years old. This remarkable achievement provides perspective in a world obsessed with short-term market movements, political and economic risk.
“One of the great features of investment companies is the ability of the board to set strategy and to adapt to a changing world. Merchants was formed originally to finance the North American railway boom, and other opportunities elsewhere around the world, but it has evolved over the years. Whilst Merchants now invests solely in UK companies, it is notable that many British companies are multinational businesses, with the majority of Merchants’ portfolio’s underlying sales and profits still coming from abroad. Generating a high income has always been part of Merchants’ DNA, long before DNA was discovered, and we are proud to have been able to raise the Trust’s ordinary dividend for the last 37 years.”
Over the years, the Trust’s geographic focus has shifted. In the 1890s nearly half of the portfolio was invested in the United States (not surprising given the original focus on the railroads) with only about 12.5% closer to home, in domestic and European stocks. By the time the Wall Street Crash of 1929 struck, the US exposure had fallen by more than half. Although the portfolio remained widely dispersed almost half was now invested in ‘home’ and European stocks.
Now, the focus is on the UK but let’s not forget that many of the UK’s leading companies have business activities worldwide and therefore offer investors truly global reach from a strong location. This means that the trust – and its investors - should benefit from extremely high standards of corporate governance and yet still gain global exposure.
The Trust’s Manager is Simon Gergel who joined Allianz Global Investors in April 2006 and assumed responsibility for managing the Merchants portfolio that same year. Markets have been volatile in the years Simon has been at the helm. Indeed, within a year of taking over the Trust, Simon found himself in the midst of what many consider to be the worst global financial crisis since the Great Depression of the 1930s.
Over the years, there have been some incredibly tough times where attention to detail, diligent research and caution - from everybody involved in running the Trust - have been pivotal.
This is as true now as it was in 1889, helping Merchants not just to survive every conflict and crisis in well over a century but to generate notable long-term returns for its investors. Of course, past performance is never a reliable indicator of what the future could hold, but the Trust’s portfolio has always worked hard to deliver an income as well as capital growth for its investors. Indeed, the Trust has paid increasingly higher dividends to its investors each year since 1982.
In many ways everything has changed since 1889 but in other ways things are as they always were: the heart of the Trust is still run from within the sound of Bow Bells since the offices of Allianz Global Investors are close by in Liverpool Street, in the City of London, perhaps half a mile from where it all started.
One could argue that the real success of the Trust is that it’s been consistent to its roots. We’re doing something very similar to what the founders set out to do and we certainly still share the same objectives on behalf of our investors, which is to be as focused on capital growth and dividend growth as they are. Suffice to say that investors looking for growth and, in today’s low interest rate environment, income, may find the track record, resources and resilience of The Merchants Trust compelling.