Portfolio & Performance

ISINGB0005800072
SEDOL0580007

Share Price is the price of a single ordinary share, as determined by the stock market. The share price above is the mid-market price at market close.
Share Price
424.0p


Net Asset Value (NAV) per Share is calculated as available shareholders’ funds divided by the number of shares in issue, with shareholders’ funds taken to be the net value of all the company’s assets after deducting liabilities. The NAV figure above is based on the fair/market value of the company’s long-term debt and preference shares (known as debt at market value). This allows for the valuation of long-term debt and preference shares at fair value or current market price, rather than at final repayment value (known as debt at par).
NAV per Share
419.9p


Premium/Discount. Since investment company shares are traded on a stock market, the share price that you get may be higher or lower than the NAV. The difference is known as a premium or discount.
Premium/-Discount
1.0%


Dividend Yield is calculated using the latest full year dividend divided by the current share price.
Dividend Yield
6.4%

Data source DataStream and Allianz Global Investors as at 26.11.2020 based on market close mid price.

Awards & Ratings

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RSMR Rating: The Merchants Trust has been awarded RSMR’s ‘R’ rating, widely recognised as a mark of quality for funds, ranges and investment trusts that receive this seal of approval. The RSMR research process results in a list of investment trusts which are the trusts that RSMR feel have a robust, repeatable process and the ability to deliver strong performance in the future.
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Association of Investment Companies (AIC) Shareholder Communication Awards 2020: The Merchants Trust won the award for ‘Best Report and Accounts – Generalist’. The judges praised the winning entry for the quality of its case studies and investment report, its use of language that was easy to understand, and the level of detail provided on the portfolio.
The RSMR rating is designed for use by professional advisers and intermediaries as part of their advice process. This rating is not a recommendation to buy. If you need further information or are in doubt then you should consult a professional adviser.
Association of Investment Companies (AIC) Shareholder Communication Awards 2020: The Merchants Trust won the award for ‘Best Report and Accounts – Generalist’. The judges praised the winning entry for the quality of its case studies and investment report, its use of language that was easy to understand, and the level of detail provided on the portfolio.

Portfolio

The data shown is not constant over time and the allocation may change in the future. Totals may not sum to 100.0% due to rounding. All data source Allianz Global Investors unless otherwise stated.

Top 10 Holdings (%)

GlaxoSmithKline
5.6
British American Tobacco
4.6
Imperial Brands
4.6
Scottish & Southern Energy
3.9
National Grid
3.7
BAE Systems
3.6
Barclays
3.5
Tate & Lyle
3.1
IG Group
3.1
WPP
3.0

Data as of 31.10.2020

Geographic Breakdown (%)

UK 99.5
Cash 0.5

Data as of 31.10.2020

Sector Breakdown (%)

Consumer Goods
23.4
Financials
21.4
Industrials
18.8
Utilities
7.9
Consumer Services
7.4
Oil & Gas
7.0
Health Care
5.8
Telecommunications
4.3
Basic Materials
3.7
Cash
0.5

Data as of 31.10.2020

Market Cap Breakdown (%)

FTSE 100 63.0
FTSE 250 23.6
Small Cap 13.0
Cash 0.5

Data as of 31.10.2020

Fund Manager Comments

Investors were nervous in October as a second wave of rising cases of Covid-19 in Europe led to regional and in some cases national lockdowns, although these were generally not as stringent as measures taken earlier in the year. There was also continuing uncertainty about the forthcoming US presidential elections and the Brexit negotiations between the UK and EU, which continued past a self-imposed UK deadline in the middle of the month.

Most stock markets produced negative single digit total returns. The UK stock market, as measured by the FTSE All-Share index returned -3.8%, although medium and smaller sized companies outperformed. The falling stock market was led down, somewhat surprisingly, by several of the more defensive sectors, such as food producers, tobacco and pharmaceuticals, although life insurance shares also underperformed. The strongest performing sectors produced positive returns and included cyclical sectors like banks and industrial engineering, as well as the more defensive utility and telecommunications sectors.

Portfolio performance was ahead of the benchmark with the Trust’s NAV return for the month also ahead at -0.8%. The three biggest positive contributions to outperformance were companies that announced results or trading updates in the month. Tyman and DFS, where share prices rose around 20% in the month, are both seen as benefitting from people spending more time at home during the pandemic. There has been a strong recovery in demand for both new homes and home improvements, which benefits Tyman’s window and door components businesses, whilst strong demand for sofas has led to strong growth for UK market leader DFS in the early months of their new financial year. Barclays share price also responded well to results, which showed growth in their investment bank and a reduction in the bad debt charge compared to the previous quarter.

On the other hand, the biggest negative impact on relative performance came from weak share prices of economically defensive businesses, like BAE Systems and Imperial Brands, as well from not owning HSBC, as those shares rallied along with the sector.

We added to two financial investments that we initiated in September, Close Brothers and RSA Insurance. These were financed partly by selling the remaining small position in NatWest and reducing property company Landsec, where we had a lower level of conviction.

We also added selectively to large, high yielding companies that were lowly valued such as BP, Vodafone, SSE and GlaxoSmithKline. These investments were financed by selling the remaining position in water utility Pennon, which had performed extremely strongly and became fully valued after announcing the sale of its Viridor waste business for a high price. Finally, we took some profits after gains in Tyman, Stock Spirits, IG Group and PZ Cussons.

As we look forward, there are uncertainties around US policy following the election and continuing UK / EU trade negotiations. But, the course of the coronavirus pandemic is likely to remain the biggest short term issue for stock market investors torn between the economic damage of further restrictions to movement and activity on the one hand and hopes for recovery driven by vaccines, better treatments and effective tracking on the other. At present, restrictions are less onerous than earlier in the year allowing most manufacturing and some service industries to operate effectively, including education, housebuilding and home improvements. Whereas other industries remain severely impacted, including aviation, transportation and leisure.

Uncertainty over the shape and pace of economic recovery is exacerbating the polarisation of the stock market. There are extremely high valuations placed on being in certain businesses offering more reliable growth or making strong returns on capital employed, whilst many other businesses trade on very low valuations. The Merchants Trust has a strong bias towards cheaper stocks, with the average valuation of portfolio companies at a significant discount to the broader market. We believe these companies can offer a combination of an attractive dividend yield and strong total returns in the medium term. It is worth noting that the portfolio also has a balance between defensive and cyclical or financial companies, reflecting attractive investment opportunities in both of these areas, and continuing uncertainty over the outlook.

Simon Gergel11 November 2020

Uncertainty over the shape and pace of economic recovery is exacerbating the polarisation of the stock market

This is no recommendation or solicitation to buy or sell any particular security.

Performance

Performance (%)

Select period:

    Cumulative Returns (%)

    3M6M1Y3Y5Y
    Share Price2.0-9.9-26.7-17.51.3
    NAV (debt at fair value)-0.6-5.9-24.7-21.7-1.2
    Benchmark-3.2-2.0-18.6-14.410.1

    Source: Thomson Reuters DataStream, percentage growth, mid to mid, total return to 31.10.2020.1

    Discrete 12 Month Returns to 31 October (%)

    2020 2019 2018 2017 2016
    Share Price-26.79.03.321.51.1
    NAV (debt at fair value)-24.76.2-2.115.59.3
    Benchmark-18.66.8-1.513.113.7

    Source: Thomson Reuters DataStream, percentage growth, mid to mid, total return as at 31.10.2020.1

    1Past performance is not a reliable indicator of future returns. You should not make any assumptions on the future on the basis of performance information. The value of an investment and the income from it can fall as well as rise as a result of market fluctuations and you may not get back the amount originally invested.This investment trust charges 65% of its annual management fee to the capital account and 35% to revenue. This could lead to a higher level of income but capital growth will be constrained as a result.

    Copyright 2020 © DataStream, a Thomson Reuters company. All rights reserved. DataStream shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

    © Allianz Global Investors GmbH 2020, Registered Office: Frankfurt am Main, Register: HRB 9340, Local court: Frankfurt am Main. All Rights Reserved. The Merchants Trust PLC is incorporated in England and Wales. (Company registration no. 28276). Registered Office: 199 Bishopsgate, London, EC2M 3TY. The Company is a member of the Association of Investment Companies - Category: UK Equity Income.