Performance, Commentary & Portfolio
ISIN GB0005800072 | SEDOL 0580007
Fund Manager’s Review
Financial markets continued to respond to trade and tariff policies being set in the White House. President Trump agreed to substantially reduce tariffs on China, at least temporarily, but threatened additional tariffs on the European Union and further raised tariffs on Aluminium and Steel imports. Credit rating agency Fitch became the last of the main agencies to downgrade US government debt from the top AAA rating, on concerns about the country’s growing debt burden and a deterioration in governance standards.
In the UK, the Bank of England cut interest rates for the fourth time this cycle, to 4.25%, in a narrow vote by its Monetary Policy Committee. However, the inflation rate subsequently came in above expectations, with core CPI up 3.8% over twelve months, due to higher energy costs, increases in the National Living Wage and other factors.
Equity markets took comfort from the reining back of US tariffs on China, with major indices ending the month higher than the level before President Trump’s “Liberation Day” on April 2nd. The US stock market was up over 6%, with technology stocks even stronger, although the US dollar fell for the fourth consecutive month on concerns about the US fiscal situation and trade policy.
The FTSE All-Share Index in the UK returned just over 4%, with medium and smaller companies leading the market. The best performing larger sectors included travel & leisure, aerospace & defence and banks. The weakest sectors included many economically defensive industries, such as beverages, tobacco and utilities.
Portfolio performance was ahead of the benchmark, benefitting from stock selection and a high exposure to medium sized companies. The Net Asset Value (NAV) total return was 5.48% compared to 4.14% from the benchmark, FTSE All-Share index. The largest contributor to outperformance was Burberry, which rallied over 40% as a confident results presentation gave investors more faith in the business turnaround. Pets at Home also rallied ahead of results, whilst portfolio performance benefitted from not owning AstraZeneca, which was weak and held back the index return. On the negative side, DCC underperformed, as final results disappointed investors, despite the company announcing a share buy-back. Performance was also impacted by not owning Rolls Royce and Glencore, which rallied, and lifted the benchmark return.
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"It is possible we are seeing the start of a reappraisal of the attractions of US assets, compared to those in the UK and Europe but it is too early to know" |
The largest transaction was the sale of Bank of Ireland. The shares had performed well, benefitting from relatively benign operating conditions and a highly consolidated banking market in Ireland. However, the argument for holding an Irish bank compared to a domestic bank has weakened, as Eurozone interest rates have been reduced more aggressively than those in the UK, which could impact net interest margins. We reinvested about half the proceeds into UK banks, building up the Barclays and Lloyds positions. Elsewhere we continued to build a position in Serco, and we took advantage of share price weakness to add to Harbour Energy, DCC and Rio Tinto, amongst others. These additions were funded by reducing shares that had performed well recently, including Burberry, Pets at Home and IG Group. We also took some profits on Drax, as changing priorities and pressure on public finances, make it less likely that Drax will receive a government subsidy to build Bio-Energy Carbon Capture and Storage (BECCS).
The rally in May, meant that the UK stock market was up over 8% since the start of 2025, well ahead of the main US markets, and even more so in US dollar terms. The major European stock markets have also been strong. It is possible we are seeing the start of a reappraisal of the attractions of US assets, compared to those in the UK and Europe but it is too early to know.
There remain risks to world trade and economic growth from policy decisions in the USA, which could yet impact financial assets. However, we do not try to take a view on the overall stock market direction. Rather, we focus on the underlying, fundamental attractions of individual companies and the value on offer in their shares. We see a plethora of opportunities to buy strong businesses trading well below our assessment of their intrinsic value and, in general, paying high dividend yields. Whilst we would anticipate bumps along the way, we believe that investing in a collection of such companies should allow Merchants to meet its longterm objectives.
Simon Gergel
31 May 2025
This is no recommendation or solicitation to buy or sell any particular security. Any security mentioned above will not necessarily be comprised in the portfolio by the time this document is disclosed or at any other subsequent date.
Key Information |
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Launch Date |
16 February 1889 |
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AIC Sector |
UK Equity Income |
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Benchmark |
FTSE All-Share |
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Annual Management Charge |
0.35% |
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Performance Fee |
No |
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Ongoing Charges 1 |
0.56% |
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Year End |
31 January |
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Annual Financial Report |
Final published in April, Half-yearly published in September |
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AGM |
May |
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Dividend Pay Dates |
February/March, May, August, November |
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Dividend XD Dates |
January, April, July, October |
1. Source: AIC, as at the Trust’s Financial Year End (31.01.2023). Ongoing Charges (previously Total Expense Ratios) are published annually to show operational expenses, which include the annual management fee, incurred in the running of the company but excluding financing costs.
Registrations |
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Company No. |
00028276 |
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FATCA GIIN No. |
ZHLNUL.99999.SL.826 |
Codes |
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RIC |
MRCH.L |
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SEDOL |
0580007 |
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ISIN |
GB0005800072 |
Awards & Ratings
Shares Awards 2021 - Best Investment Trust for Income: The Merchants Trust was recognised in 2021 by the readers of shares magazine. The award is voted for by readers and is not influenced by an industry panel, providing a validation of Merchants' investment strategy from individual investors in the trust.
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.
Association of Investment Companies (AIC) Shareholder Communication Awards 2021: 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.
A ranking, a rating or an award provides no indicator of future performance and is not constant over time.