The Trust reported interim results in September. A key development was the increase in the level of the first two quarterly dividends, benefitting from increasing income within the portfolio, as well as the benefits of last year’s debt refinancing, which has lowered borrowing costs. The Chairman said that it is the board’s intention to pay at least a 4.4% increase in the annual dividend level this year, a step up in the rate of dividend growth from recent years.

September saw continuing political uncertainty, which has now become a normal feature of the investment environment. In the Brexit negotiations, Prime Minister Theresa May’s “Chequers” plan was publicly rejected by the EU, leaving no clear path to Brexit. Also, the Labour opposition announced a controversial new policy at their annual conference, that could transfer 10% of many UK listed companies’ equity and dividends into a fund to support the employees and the exchequer.

There were some important developments within portfolio companies. Inmarsat, the provider of mobile satellite connectivity to ships and aeroplanes, announced a landmark collaboration with Panasonic, the world leader in inflight entertainment systems, to work together to supply the rapidly growing demand for Wi-Fi and other connectivity to aircraft passengers. Pub company Greene King reported better than expected trading over the summer months, suggesting that the company may be starting to come through the difficult patch they experienced after acquiring the “Spirit” pub estate. On the negative side, spread-betting company IG Group reported a drop in activity in its first quarter, reflecting lower market volatility and recent regulatory changes in the industry. The company also announced that it is looking for a new Chief Executive Officer, with “wide global experience in the broader financial sector” for the next stage of the business’s development. This impacted the share price which had already weakened in response to the trading news.

The UK stock market posted a modest gain in September, led by the resources sectors - mining and oil & gas producers - as the oil price continued to increase. The weakest sectors included electricity, personal goods and food retail. The Trust’s NAV fell by 0.39% over the month, underperforming its benchmark, which rose by 0.70%. There were particular impacts from the issues at IG Group and a warning from energy producer SSE, due to the summer weather, as high temperatures reduced energy demand, and light winds reduced wind power generation. On the other hand, Meggitt shares had a good month, and relative performance benefitted from the portfolio not owning British American Tobacco which was weak.

The Trust’s main activity in the month was the sale of two portfolio holdings. We sold Sainsbury, where the shares had performed well since announcing their proposed merger with Asda, moving the valuation close to our assessment of fair value, at least in the short term. The merger will take a long time to complete and is not without risk, so we decided to exit the position. We also sold the remaining position in Equiniti on valuation considerations. Equiniti has been a successful investment since we purchased it just after its floatation in 2015, as the management has made an important strategic move into the US share registration market, and the shares have re-rated.

In the current uncertain political and economic environment, our strategy is not to position Merchants for one specific scenario, but to place a strong emphasis on portfolio construction. We aim to hold a broadly diversified portfolio of companies, spread across many different industries, both domestically exposed and those with multinational or global businesses.

Due to the modest valuation of the UK stock market, we have been able to identify many attractively priced companies that meet our investment criteria. Specifically we are looking for fundamentally sound businesses, trading on reasonable valuations, that benefit from supportive structural and cyclical thematic trends. By owning a selection of these businesses, our aim is to build a portfolio that can deliver a healthy level of income, income growth and capital returns in the medium to long term.