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
445.0p


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
449.4p


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
6.1%

Data source DataStream and Allianz Global Investors as at 25.01.2021 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
Imperial Brands
5.0
British American Tobacco
4.5
Scottish & Southern Energy
3.9
Barclays
3.9
Royal Dutch Shell - B Shares
3.6
BAE Systems
3.5
BP
3.2
IG Group
3.2
WPP
3.1

Data as of 31.12.2020

Geographic Breakdown (%)

UK 97.5
Cash 2.5

Data as of 31.12.2020

Sector Breakdown (%)

Consumer Goods
23.0
Financials
20.8
Industrials
16.9
Oil & Gas
8.0
Utilities
7.0
Consumer Services
6.8
Health Care
5.7
Telecommunications
4.4
Basic Materials
3.3
Technology
1.6
Cash
2.5

Data as of 31.12.2020

Market Cap Breakdown (%)

FTSE 100 61.8
FTSE 250 23.6
Small Cap 12.2
Cash 2.5

Data as of 31.12.2020

Fund Manager Comments

The coronavirus pandemic dominated news flow for financial markets, as it had done for much of 2020. Early in the month, the UK became the first country to approve the Pfizer / BioNTech vaccine and the first Western country to begin vaccinating people. This provided a further sentiment boost to stock markets, following news of successful trial results in November. However, rising infection rates in the UK and the discovery of a new, more contagious strain of the virus, led to increasing restrictions on activity and a very subdued festive season. This provided a reminder of the very real health and economic costs of the pandemic.

The other major event in the UK, was the signing of a Brexit trade and cooperation agreement with the EU after many months of difficult negotiations. Investors generally welcomed the deal, which allows for tariff and quota free trade in goods between the UK and EU, and also covers many other areas, including security, transport, telecommunications and energy. There had been fears, right up until the final few days, that the UK would exit the transition period at the end of December, without an agreement.

Stock markets rose in December, supported by the Brexit deal, which particularly lifted medium and smaller companies that are more exposed to the domestic economy. The FTSE All-Share Index gave a total return of 3.9%. Sector performance was mixed, with the more cyclical and domestically exposed companies tending to outperform. The strongest performing sectors included electricity, fixed line telecommunications, mining and life insurance, whilst the weakest included pharmaceuticals, personal goods, beverages and banks. For the full calendar year, the UK stock market produced a negative total return of approximately 10%, although this marked a significant recovery from the low point in March.

The portfolio return was well ahead of the benchmark and drove a 7.5% return in the Trust’s NAV over the month, compared with the 3.9% from the index. Several companies’ shares produced double digit total returns, including Meggitt, Imperial Brands and Kin & Carta. The latter rose by over 30%, as it announced further corporate deals, building up its digital transformation business. But the biggest relative performance contributions came from not owning AstraZeneca and Unilever, which both gave small negative returns, holding back the index. The largest negative contributions came from BAE Systems, which fell back slightly, and from not owning Rio Tinto and Prudential, which both rose by over 10%.

We added one new company to the portfolio, Conduit Holdings. This is a new reinsurance company, established in Bermuda and listed in the UK. It has been set up to take advantage of a cyclical upturn in insurance pricing. This follows three years of large losses in the insurance industry, which has led to capacity constraints among insurers and sharply rising insurance rates. Conduit is led by an experienced team, that have managed several start up and more established insurance and reinsurance companies. We took part in the initial public offering of the company, investing at asset value.

We sold the remaining holding in National Express, after the recent rally in the share price, as explained last month. We also reduced the position in shopping centre owner Hammerson. This has been one of our worst investments in recent years, as the Covid-19 pandemic has exacerbated structural pressure that were already evident in the retail industry. Temporary centre closures have led to an acceleration in retail tenant failures and further rental declines. We supported the company’s rights issue in the summer, which we saw as a necessary step towards restoring financial security to allow the company time to reposition the business and realise its substantial asset value. The shares have subsequently rallied, and whilst there remains significant potential upside, there are also many risks and cash dividends are likely to be constrained for some time.

As we move into 2021, most of the uncertainty over Brexit and the UK’s future trading arrangements with the EU has finally been removed. This should make UK equities, which have been relatively cheap for some time, more attractive to global investors, even though many UK listed companies are multi-national businesses that are not that dependent upon the UK economy. The vaccine rollout at home and abroad should also lead to a greater investor focus on economic recovery from the pandemic, although the short-term outlook remains highly uncertain. Despite a recovery in “value” oriented shares in recent months, the stock market remains polarised and we still see many attractive investment opportunities. Merchants owns a portfolio of strong businesses trading on reasonable or low valuations, with supportive structural or cyclical thematic drivers. We believe this portfolio has the potential to deliver a level of income and total returns commensurate with Merchants’ objectives.

Simon Gergel18 January 2021

This should make UK equities, which have been relatively cheap for some time, more attractive to global investors

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

Performance

Performance (%)

Select period:

    Cumulative Returns (%)

    3M6M1Y3Y5Y
    Share Price34.320.1-14.36.736.9
    NAV (debt at fair value)30.119.6-12.30.329.6
    Benchmark12.69.3-9.8-2.730.7

    Source: Thomson Reuters DataStream, percentage growth, mid to mid, total return to 31.12.2020.1

    Discrete 12 Month Returns to 31 December (%)

    2020 2019 2018 2017 2016
    Share Price-14.328.4-3.115.710.9
    NAV (debt at fair value)-12.332.0-13.414.213.2
    Benchmark-9.819.2-9.512.819.1

    Source: Thomson Reuters DataStream, percentage growth, mid to mid, total return as at 31.12.2020.1

    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 2021, 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.