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
517.5p


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
510.3p


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
1.4%


Dividend Yield is calculated using the latest full year dividend divided by the current share price.
Dividend Yield
5.3%

Data source DataStream and Allianz Global Investors as at 12.04.2021 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
4.9
Imperial Brands
4.3
British American Tobacco
4.2
Royal Dutch Shell - B Shares
3.9
BP
3.8
Barclays
3.7
BAE Systems
3.4
Scottish & Southern Energy
3.4
WPP
3.3
Tate & Lyle
3.2

Data as of 28.02.2021

Geographic Breakdown (%)

UK 99.1
Cash 0.9

Data as of 28.02.2021

Sector Breakdown (%)

Consumer Goods
21.9
Financials
21.8
Industrials
18.6
Oil & Gas
9.3
Consumer Services
7.0
Utilities
6.6
Health Care
5.0
Telecommunications
4.5
Basic Materials
3.3
Technology
1.1
Cash
0.9

Data as of 28.02.2021

Market Cap Breakdown (%)

FTSE 100 63.2
FTSE 250 24.4
Small Cap 11.6
Cash 0.9

Data as of 28.02.2021

Fund Manager Comments

A year after the coronavirus pandemic first rocked markets, there was a clear change in market sentiment in February. With evidence mounting that vaccines are proving effective at reducing the spread of the virus and the rate of hospital admissions, there was rising optimism about the economic outlook. Bond markets reacted to improving prospects and the risk that higher commodity prices would stoke inflation. Bond prices fell sharply, as yields rose, with the US ten-year bond yield hitting 1.5%, before pulling back on the last day of the month. In the UK 10-year gilt yields more than doubled to 0.82%.

Equity prices moved in the opposite direction to bonds, with the FTSE All-Share index giving a total return of 2%, with small and mid-cap companies rising more than larger companies. Within the stock market, there was a definite pro-cyclical bias. Banks, which benefit from higher interest rates, led the market. The banks sector, along with travel & leisure, life insurance, mining and oil & gas producers, all made double digit gains, whilst defensive sectors like food retail, personal goods, electricity and pharmaceuticals fell between 7-10%.

The portfolio outperformed the stock market, with stock contributions mirroring this theme. Barclays shares were up over 20%, and the portfolio also benefitted from not owning Unilever or AstraZeneca, which both underperformed. On the other hand, the biggest negative contributions came from the defensive stocks SSE, Imperial Brands and GlaxoSmithKline, which all underperformed. Against this strong background the Trust’s NAV total return over the month was 5.5%, well ahead of the 2% return from the index.

There were no new investments or complete sales. We took profits in shares that had appreciated significantly in recent months, and were less attractively priced, such as Stock Spirits, PZ Cussons and Barclays. This money was recycled into shares that remained very attractively valued, such as the housebuilders Redrow and Bellway and the asset manager Man Group.

The UK stock market is one of the cheapest major markets and remains highly polarised. As a generalisation, companies offering higher growth and those often referred to as higher quality - making high and more stable returns on capital - trade at a substantial premium to the rest of the stock market. This creates excellent stock picking opportunities, as many perfectly sound companies are significantly under-priced.

The portfolio is invested in a collection of modestly priced yet fundamentally strong companies, exposed to supportive end market themes. It is diversified across industries, geographic exposures and economic cyclicality. We believe that this portfolio is well positioned to deliver a combination of above average income and total returns.

Active Engagement

We believe in active engagement with companies on environmental, social and governance (ESG) issues, on behalf of shareholders. Not only do we want to understand how businesses assess risks, such as climate change, we want to encourage them to reposition their businesses to address this, and other issues. A recent meeting with the management of Shell highlights the complexities of the issue of climate change, and how the big energy companies can be important, probably essential, players in the transition to a zero-emission future, whilst driving profitable business opportunities.

Shell markets approximately 5% of the world’s energy, almost three times the energy it actually produces. Over 90% of related greenhouse gas emissions comes from their customers’ use of this energy, not their own. Shell has many of the vital capabilities to help those customers cut or offset their emissions and is committed to achieving a net-zero emission business by 2050. Consider a couple of examples. To transition trucks to “green” (zero emission) hydrogen power, assuming the technology can be developed, requires a massive expansion of hydrogen production and scale businesses, that can distribute huge quantities of gas, and supply it at thousands of convenient locations around the world. But it also requires the balance sheet and capability to manage and hedge commodity risk and negotiate contracts with large users, not to mention working with governments to promote appropriate regulatory and taxation policies.

Another example to consider, is large industrial users that need huge amounts of heat and power. It may not be realistic or even possible to supply them with totally renewable power. There may need to be “offsets”, where carbon dioxide is pumped into underground caverns to neutralise the greenhouse impacts. The energy companies are in an almost unique position of having many of the technical capabilities, capital, people and underground storage locations to perform these tasks.

If the large energy companies, like Shell, are not involved in these activities, the energy transition will likely take longer and be harder to achieve. Just as the electricity utility SSE has transitioned from running coal fired power stations, to operating one of the UK’s largest wind and hydro powered generation businesses, we think the big energy companies will move, in time, from being seen as part of the problem to an essential part of the solution to climate change.

Simon Gergel15 March 2021

A year after the coronavirus pandemic first rocked markets, there was a clear change in market sentiment in February

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

Performance

Performance (%)

Select period:

    Cumulative Returns (%)

    3M6M1Y3Y5Y
    Share Price9.332.22.113.647.7
    NAV (debt at fair value)12.331.17.39.939.8
    Benchmark5.112.03.53.834.5

    Source: Thomson Reuters DataStream, percentage growth, mid to mid, total return to 28.02.2021.1

    Discrete 12 Month Returns to 28 February (%)

    2021 2020 2019 2018 2017
    Share Price2.14.36.75.523.1
    NAV (debt at fair value)7.30.71.76.619.3
    Benchmark3.5-1.41.74.424.2

    Source: Thomson Reuters DataStream, percentage growth, mid to mid, total return as at 28.02.2021.1

    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.